Do Legal Insider Transactions Generate Abnormal returns and are Those Related to Firm and Transaction Size?

Prior research has shown that legally reported insider transactions may yield abnormal returns, but the results vary depending on the market analysed. This raises concerns regarding market efficiency and the power of information asymmetry. Therefore, this thesis investigates if there is a possibility to generate abnormal returns through legal insider transactions on the Swedish stock market NASDAQ OMX. Further research regarding the influence of firm size and transaction size on these abnormal returns are also included. Through the use of an event study methodology, 1004 observations from 30 randomly selected companies, 10 small-, 10 mid-, 10 large-cap, between 2019-2024 are analysed to see if there are any statistically significant cumulative abnormal returns through following insider transactions. The result from this study indicate that abnormal returns are achievable from small and mid-cap companies, whilst it is hard to achieve any from large cap companies. It is found that small companies tend to yield the highest achievable abnormal returns, ergo highest CAR. The results therefore indicate a negative relationship between firm size and abnormal returns. Further results regarding transaction size shows that smaller transactions yield higher abnormal returns compared to the larger transactions. These findings may suggest that insider trades act as a valuable market signal, supporting the signalling theory and poses a challenge for the semi-strong form of Famas efficient market hypothesis (EMH). Robustness checks confirm the consistency of our results through the use of different estimation windows. We aim to provide insights for investors seeking to interpret insider activity as well as providing further research on market efficiency and regulatory policies.