This article examines the extent to which abnormal or excess return gained by insiders is realized by price changes. The focus of most of these studies is whether insiders obtain trading gains from use of inside information. The answer to this question has clear implications for market efficiency: under the semistrong form of the efficient market hypothesis, all public information is fully reflected in prices. Under the strong form of that hypothesis securities prices reflect all relevant information, regardless of what information is publicly available, with the implication that no abnormal profits could be made through the use of inside information. An important finding of these studies particularly the more recent ones, is that insiders outperform the market, thus refuting the strong form of the efficient markets hypothesis. An inference that is sometimes drawn from this finding is that insider trading is based on inside information and is therefore in violation of federal law. The main purpose of this study is to analyze the association between insiders' trading and subsequent publication of news on their respective companies and to assess the extent to which abnormal returns earned by insiders are due to subsequent disclosure of specific news as distinguished from information that trades by insiders had occurred.
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