Literature Review:

Esther B. Del Brio, Alberto Miguel, Javier Perote(2002 ) This paper investigates the
profitability and information content of insider trading in the Spanish stock market. we applied the
methodology of event studies .Our results show that insiders earn excess profits when investing on
corporate nonpublic information, while outsiders mimicking them fail to obtain those excess
returns. The paper also investigates the relevance of a third party investing on the insiders
behalf. The study further focuses on some methodological aspects, such as the need to take
estimation periods that are not affected by other events or by other prediction periods, and the
need to allow volatility during insider trading events to have inter day memory.
2
H. Nejat Seyhun, Michael Bradley(1997) In this article we document that corporate
insiders engage in significant sales of their firms stock in the months and even years preceding a
bankruptcy filing and thereby avoid significant capital losses. We find that insider selling begins
5 years before the filing date and builds to a crescendo up to the announcement month. We also
find that selling is more intense for top executives and officers. Finally, we show that insiders
sell stock before prices fall and buy stock after prices have fallen.
3
Loderer and Sheehan (1989) examine the change in insider holdings of firms
that filed a bankruptcy petition between 1971 and 1985. They collect their insider
holding data from proxy statements. Because of this selection technique, their
sample contains mostly large, exchange- listed firms. Their major finding is that
there is no statistical change in the holdings of the insiders of firms that file
bankruptcy over the 5 years preceding the filing date. Based on the finding of no
difference in reported holdings, they conclude that there is no significant insider
trading activity in the years preceding a bankruptcy filing and certainly no
significant amount of selling.
4

KhalilM. Torabzadeh Dan Davidson Hamid Assar (1989)This paper addresses the
impact of the unethical business conduct of a few individuals that shook the financial market in
1986. Event Study Methodology was used. The largest insider-trading scandal on the record
brought about the full impact on the securities firms. The compound effect caused a sharp
decline in the AAR in the post-Boesky period. Specifically, in the study under taken for this
paper, the wealth status of the shareholders of securities firms was examined in relation to the
public disclosure of the insider-trading scandals involving Dennis Levine, Ivan Boesky, and their
confederates. It was hypothesized that the expected market-adjusted stock returns for the
securities firms would be negative as a result of the scandals. The findings of the study supported
the hypothesis.
5
Elizabeth Wong(2002) Since Great Britains return of Hong Kongs sovereignty to the Chinese

Government in 1997, attention has been increasingly directed at the degree of market efficiency
in the post-handover Hong Kong stock market. Event Study Methodology was used. This study
uses a sample of 542 corporate news announcements from January 1994 through December 2000
of Hong Kong and China-affiliated firms that are listed on the Stock Exchange of Hong Kong. I
examine the efficiency of the Hong Kong stock market by investigating the abnormal price and
volume performances surrounding the corporate news announcements. Data of U.S. stocks are
also used and serve as benchmarks for a comparative analysis of the relative market efficiencies.
This paper finds that there is very little unusual price and volume behavior for both Hong Kong
and U.S. stocks. There exists, however, strong evidence that points towards suspicious insidertrading activities among the Red-Chips and H-share stocks of the China-affiliated firms that are
listed in Hong Kong, where significant abnormal returns abound prior to the arrival of good news
announcements.
6
Penman (1982) investigates one insider-trading pattern by focusing on management forecasts of
annual earnings. He uses the sign of price change on the days preceding and including the
forecast announcement to determine the expected direction of insider-trading activity. Portfolios
are chosen on the basis of these price changes, and net insider buying and selling behaviors are
examined for four months before and after the announcement. He concludes that there appears to
be greater selling by insiders before forecasts associated with either a price decrease or a price
increase, affirming the hypothesis that profitable trading is associated with the release of public
information.
7
Todd Houge,Jay Wellman(2005) In September 2003, several prominent mutual fund companies
came under investigation for illegal trading practices. Allegations suggested these funds allowed
certain investors to profit from short-term trading schemes at the expense of other investors.
Surprisingly, regulatory authorities have known for more than two decades of the potential for
such abuses, yet have taken limited steps to correct the problem. We explore investor reaction to
the scandal by measuring assets under management, stock returns, and performance. Mutual
funds managed by investigated firms show a substantial decline in post-announcement assets
under management. These firms also experienced significantly negative announcement- period
returns. Finally, we discuss several policy suggestions to prevent future trading abuses and
provide direction for future research.
8
Kam C. Chan, Joanne Li, Weining Zhang We conjecture market reactions to insider purchases
and sales are different in terms of price and volume. With an extensive data set that covers the
period from 1991 to 2006, we systematically segregate the asymmetric effects of these two types
of insider transactions. Assume the market is efficient and that average investors are rational, we
find that market reacts can distinguish and discriminate the signaling strength of insider p
purchases and sales. We find that insider purchases are a stronger signal than insider sales and
that insider purchases create a better information environment for average investors to trade and

mimic. Insider purchases are found to be a more useful tool for average investors to mimic
insiders action than insider sales because the motive for insiders to purchase is pure. Our
findings are robust to many control variables such as firm performance, size, growth, and
financial risk.
9

Cornell and Sirri (1992) conduct a detailed analysis of illegal insider trading around the
acquisition of Campbell-Taggart by Anheuser-Busch in 1982. They regress the daily return of
Campbell-Taggart on the fraction of Campbell-Taggart daily volume attributable to insiders and
find that the coefficient is positive and statistically significant. The authors conclude that
Consistent with previous studies, insider trading was found to have a significant impact on the
price of Campbell- Taggart
10

Chakravarty and McConnell (1997) examine the illegal trading activity surrounding the
acquisition of Carnation Company by Nestle S.A. in 1984. They regress both daily and hourly
returns on Carnations stock on Boesky volume and certain control variables. The coefficient of
Boesky volume is positive and statistically significantly different from zero. The authors
conclude that insider trading appears to facilitate price discovery.
11
Ray C. Fair(2002) Tick data on the Standard and Poors 500 Stock In- dex (S&P 500) futures
contract and newswire searches are used to match events to large 1- to 5-minute stock price
changes. Sixty-nine events that led to large stock price changes are identified between 1982 and
1999, 53 of which are directly or indirectly related to monetary pol- icy. Many large stock price
changes have no events associated with them.
12
Raymond M. Brooks, Ajay Patel, Tie Su(2003) We examine the market reaction of
prices, volume, spreads, and trading location when firms experience events that are totally
unanticipated by the equity market in terms of both timing and content. We find that the response
time is longer than previous studies have reported. Selling pressure, wider spreads, and higher
volume remain significant for over an hour. We also find an immediate price reaction for
overnight events; however, the market takes longer to react to events that occur when it is open.
These findings may shed light on the efficacy of trading halts.
13

Dann et al. (1977) were among the first researchers to examine how quickly the equity market
adjusts to new information using intraday data. They study the equity markets reaction to
announcements of block trades and find that a trader would have to react within 5 minutes of an
announcement to earn a positive return and that transaction prices adjust completely 15 minutes
after block trades.
14
Cao, Ghysels, and Hatheway (2000) examine Nasdaq market makers activities during the
preopening period. They find that price discovery on the Nasdaq during the preopening period is
conducted via price signaling rather than the auction process used at the opening on the NYSE or

the continuous market used during the trading day. They also shed light on Nasdaqs greater
speed of adjustment to overnight news announcements. They find that the preopening period
facilitates greater price discovery than does the call auction process on the NYSE; hence the
faster price adjustment for Nasdaq stocks at the open.
15
Fleming and Remolona (1999) study the impact of scheduled macroeco- nomic news releases on
the U.S. Treasury market. They find that the arrival of public information results in a two-stage
adjustment process. In the first stage, prices react immediately, trading volume drops, and bidask spreads widen. In the longer second stage, volume surges, volatility persists, and spreads
remain wide. Their first-stage results are the same as the NYSEs and Nasdaqs responses to the
arrival of public information. The second-stage findings indicate disagreement among investors
on the information content of the public announcement. Liquidity and volatility return to their
normal levels once the Treasury market reaches a consensus.
16
Rajesh K. Aggarwal, Guojun Wu(2006) We present evidence of stock price
manipulation. Manipulators trade in the presence of other traders seeking information about the
stocks true value. More information seekers imply greater competition for shares, making it
easier for manipulators to trade and potentially worsening market efficiency. Data from SEC
enforcement actions show that manipulators typically are plausibly informed parties (insiders,
brokers, etc.). Manipulation increases volatility, liquidity, and returns. Prices rise throughout the
manipulation period and fall post- manipulation. Prices and liquidity are higher when
manipulators sell than when they buy. When manipulators sell, prices are higher when liquidity
and volatility are greater.
17
Paul C. Tetlock(2007) Using news data on S&P 500 firms, I investigate stock market responses
to public news stories that may contain stale information. I employ several empirical proxies for
news articles with old information, including variables based on past news events, media
coverage, analyst coverage, and liquidity. I find that market reactions to stale news stories
partially reverse in the next week By contrast, reactions to stories with more new information
reverse to a much smaller extent, or even continue. Return reversals after stale news stories are
much larger in stocks that individual investors trade frequently. These results and others are
consistent with the hypothesis that individual investors overreact to stale information, exerting
temporary pressure on asset prices.
18
Famas (1965) introduction of an efficient market and the event study meth- odology by Fama et
al. (1969) were the first articles to examine financial market efficiency and the speed with which
markets adjust to new information. Empirical research since Fama et al. (1969) shows how the
equity market reacts to unanticipated information. However, as the surveys of Fama (1970, 1991)
and LeRoy (1989) indicate, the equity market overreacts to new in- formation (DeBondt and
Thaler 1985, 1987; and Brown et al. 1988), under- reacts to earnings announcements (Bernard
and Thomas 1990), and, given economic fundamentals, is too volatile (Shiller 1981).