MEDIATION

ANALYSIS/MODERATOR
VARIABLES
(INSIDER TRADING,
EARNINGS AND STOCK

R.Ravichandran

MODERATOR MEDIATOR
VARIABLE (MO-ME)
Social Psychological Research
Conceptual, Strategic and Statistical Considerations
Distinguish between Moderator &Mediator Varaiable
Effect of Third variable
Focal Independent variable (FIV) sub group (domains of maximal effectiveness on Dependent variable of
Interest (DVI))
Generative mechanism of influence of FIV on DVI
Impact of identifiability on social loafing (identifiablity is important mediator of social loafing)
Gender, age, race and social economic level mediators of the relation between locus of control and academic
achievement
Contrasting the Mo-ME functions that delineate the implications of this distinctions for theory and research
Experimental Design, Research operations and plan of statistical analysis
Nature of causal mechanism and integrate seemingly irreconcilable theoretical positions
Problem areas of disagreement about mediators can be resolved by treating certain variables as
moderators

INSIDER TRADING EARNINGS

CHANGES & STOCK PRICES
Empirical examination of Relations between
Reportable insider trading and the information captured by annual unexpected earnings
(AUE) large sample of firms- ten year period 1978-87
4 groups -Net Insider trading (Buy/Sell) &(+ and of unexpected earnings)
15 month cumulative abnormal returns regressed on Annual unexpected earnings(AUE)
Slope coefficient is largest for the group where insiders are net purchasers
Sign of unexpected earnings are positive
Insider buying interactively confirms the favourable information captured by positive
unexpected earnings
This interaction reduces noise in unexpected earnings
Unfavourable information captured by the group with insider selling and negative
unexpected earnings is similar but less pronounced
Insider trading captures information not fully captured by that years earnings

LITERATURE REVIEW
Unexpected changes in earnings are associated with unexpected
changes in firm value (Ball &Brown,1968)
Market agents learn about earnings and valuation- relevant events form
many information sources throughout the fiscal period
(Foster,1986/Watts & Simmerman,1989)
Significant changes in firm value follow the trading activity of corporate
insiders (Fama,1991)
Association arises because market acts as if insider tarding is important
source of information about long term prospects of the firm (Givoly and
Palmon (1985))

PURPOSE OF STUDY
To investigate if
the information captured b y insider trading modifies the responsiveness of
returns to AUE
the information captured by insider trading differs from that captured by annual
unexpected earnings

Findings
Insider Trading conveys information not fully captured by the annual earnings

ISSUES
Research Design & Measurement
Sample Selection Procedure
Test Procedure of empirical results
Concluding remarks

RESEARCH ISSUES
Information &Insider Trading
Earnings announcements & Insider trading
Earnings Measurement & Insider Trading
SEC Rule Insiders to Disclose material information prior to trading in
their firms securities or abstain from trading
Courts: extraordinary information reasonably certain to have a
substantial effect on the market price of the security if disclosed meets
materiality standard of the statues
Much of information available to insiders is less dramatic and they
remain relatively free to trade even when the future performance of their
firm in their assessment differs from that expected by the insiders

MEASUREMENT OF
ABNORMAL RETURN
15 month period from the beginning of the fiscal year
Period of relatively little to complete public dissemination of earnings
information
AR for firm j for the month t subsequent to the first of the year
Arjt = Rjt (aJ +bj Rmt ) where
Rjt = the actual return for firm j in the t month subsequent to the
beginning of the year
Rmt = the CRSP equally weighted market index for month t
aJ & bj = estimated OLS parameters for market model for firm j using
monthly returns over months -66 to 6 relative to beginning of the year

MEASUREMENT OF
UNEXPECTED EARNINGS
AE is difference between EPS number in COMPUSTAT for year Y and
a prediction of EPS for the year Y based on a random walk walk
with drift model
Drift term is computed as the mean year to year change in EPS
during prior 5 years
UE is standardized by the firms security price at the end of year Y-1
Firms with greater than 0 are classified as UE+ and less than 0 as
UE-

MEASUREMENT OF INSIDER
TRADING
Reported IT aggregated to first quarter of each year (assumptions)
In comparison to later quarter this interval is characterized by relatively low
generation of publicly available information about forth coming annual earnings
Interval precedes the announcement of first quarterly earnings report (analysts
are unlikely to revise the forecast in first quarter) & Information of advantage of
insiders is maximized during this period
Information about trading by corporate insiders may take as long as 50 days to
become publicly available (Stickel,1989)
Information reflected by insider trading may take more than 6 months to be fully
impounded in prices(Lee & Solt,1986)
15 month cumulative abnormal return are more likely to capture the information
underlying insider trading which occurred during first quarter of the year
compared to insider trading occurred later in the year

CLASSIFICATION PROCESS
2step process sensitive to direction and magnitude of IT activity
3 groups (Buy, No Trade, Sell) bases on Net number of shares (NNS)
transacted (Shares purchased Shares sold) through private and open
market transactions by the firms insiders during first quarter
NNS >0 =Buy NNS <0 = Sell NNS =0 No Trade
For each year firms in the buy and Sell groups are assigned to either the
maximum or moderate trading categories based on the relative intensity
of the insider trading
NNS for buy and sell are standardized by common shares traded in Prior
year and this metric is ranked
Observations in Top 50 of Buy &Sell are assigned MAX BUY /MAX SELL
Other half is classified as Moderate Buy &Sell

SAMPLE
All December 31st firms fro 1978 to 1987 listed in COMPUSTAT Annual
Tape
Dec.31st fro cross sectional consistency in the effect (year end
tax/portfolio adjustment and exercise and receipt of managerial stock
options on association of PE)
Monthly security return data on CRSP Tape
66 months prior to and 15 months subsequent to the first trading day of the year
Primary annual earnings per share data on the COMPUSTAT Annual Tape (Current year
and prior 5 years)
Common shares traded during the prior year and closing security price for the prior
year (8301 observations)

SAMPLE.
Official summary of security transactions and holdings published by SEC
Reports of the transactions disclosed by corporate officers, Directors and beneficial
owners under the provisions of the SEC Act of 1934
Private and open market purchases and sales reported by insiders for the firms
corresponding to 8301 observations (Jan 1978 to Jul,1987)
Reported IT Transactions were aggregated over the first quarter of each year
Each of 8301 observations were assigned to one of the five trading categories by
employing 2 step classification procedure
Buy (Max Buy/Moderate Buy & Sell (Max Sell/Moderate sell)

Availability of Time series of quarterly EPS data from COMPUSTAT

reduced the data to 6547 observations
63 observations corresponding to a large proportional magnitude of
unexpected EPS were eliminated from sample
No of observations for each year 586m in 1979 to 725 in 1987

ANALYSIS OF INTERACTIVE
EFFECTS
If insider trading and unexpected earnings capture similar value relevant

information then we conjecture that all insider trading will systematically

affect the responsiveness of abnormal returns to unexpected earnings
Comparison between groups with similar direction of trade but different
signs of unexpected earnings
Purchase activity by insiders be examined separately from selling
Slope coefficients for the groups with confirmatory pairs (Max Buy/UE+
and Max Sell/UE-)
Regress 15 month CAR on annual unexpected EPS for the four groups
Estimated parameters for the 2 groups Max Buy are consistent with our
interaction Hypothesis

ANALYSIS OF INTERACTIVE EFFECTS

Slope coefficients for Max Buy/UE+ group is significantly steeper (1.07)
than Slope coefficient of Max Buy/UE group(0.29)
Slope coefficients for the 2 sub groups within Max sell are each significantly
greater than zero but not significantly different from each other
Both sign and magnitude of unexpected earnings are are important
explanatory variables in the regression
Observation with UE+ have uniformly larger slope coefficients than
observations with UE- it appears that there is an interaction effect between
these 2 variables
Intercept terms differ with with sign of unexpected earnings
Difference between the slope coefficients for the two sub groups within Max
buy and the difference between the intercepts for the two subgroups within
Max Sell may substantially be explained by sign of unexpected earnings

MULTIPLE REGRESSION RESULTS

Support for interaction effect Hypothesis
b3 Coefficient the measure of 3 way interaction among direction of
insider trading is positive and significant at 5% level using a one sided t
test
Significant 3 way interaction suggest that even in the presence of a
significant interaction between the sign and magnitude of UE the
inclusion of insider trading as an explanatory variable systematically
affects the responsiveness of abnormal returns to unexpected earnings
Individual regression results the b1 coefficient the 2 way interaction
between sign and magnitude of UE is also significant

SIMPLE REGRESSION ANALYSIS FOR 4 GROUPS

MODEL
CAR=A0+B0+UE+E
Group

a0 (t-stat)

B0(t-stat)

R^2 (%)

Interaction
Hypothesis
(Fstatistics)

Max Buy/UE+ 452

0.08 (3.98)

1.07(6.21)

8.9

9.65

MaxBuy/UE-

-0.10(-3.39)

0.29(1.40)

0.7

Max Sell/UE+ 721

0.02(1.4)

0.80(5.51)

4.1

Max sell/UE-

-0.11(-4.82)

0.60(3.84)

3.6

255
398

0.09

Significant at 5% level/Significant at 10% level/Abnormal returns computed by comparing

actual monthly returns to an expectation of monthly returns based on market model and
cumulated over 15 months from beginning of the year
Annual Unexpected earnings (UE) = Actual EPS- Predicted EPS/Price Per share at the
beginning of the year
EPS predicted using a random walk with Drift model

RANDOM WALK WITH DRIFT

For a random walk with drift, the best forecast
of tomorrow's price is today's price plus a drift
term. One could think of the drift as measuring
a trend in the price (perhaps reflecting longterm inflation). Given the drift is usually
assumed to be constant
The idea that stock prices revert to a long term
level. Hence, if there is a shock in prices
(unexpected jump, either up or down), prices
will return or revert eventually to the level
before the shock. The time it takes to revert is
often referred to as the time to reversion. If the
process is very persistent, it might take a long
time to revert to the mean. The key difference
between a mean-reverting process and
arandom walk is that after the shock,
therandom walkprice process does not return
to the old level.

MULTIPLE REGRESSION ANALYSIS FOR N= 1826

CAR=A0+A1*UE CLASS+A2*IT CLASS+A3*UE
CLASS+B0+B1*UECLASS*UE+B2*IT
CLASS*UE+B3*UE CLASS*IT CLASS*UE+E
Variables
&Interactions

Coefficient in
Model

Estimated
Coefficient

T-statitic

Intercept

a0

-0.028

-2.53

UE Class

a1

0.078

7.14

IT class

a2

0.016

1.52

UE Class*IT Class

a3

0.013

1.1.8

Mean UE

b0

0.687

8.37

UE Class*UE

b1

0.246

2.99

IT Class*UE

b2

-0.009

-0.11

UE Class*IT
Class*UE

b3

0.145

1.77

Adj R^2 12.9

RESULTS
Descriptive Analysis IT intensity, Standardized UE &Cumulative
abnormal Returns (CAR) over 15 months
43% of sample of 6484 observations show no net trading by insiders
When IT occurs net selling by insiders is more prevalent than net buying
(net sell to net buy ratio 1.56)
Intensity of Trading is very small (0.1% )(Insiders trade 10000 shares out
of total trading of 10 million shares during first quarter)
Mean of UE are not significantly different (F value 1.5) among 5 trading
categories
IT is poor predictor of direction of UE (Givoly& Palmon,1985)
Mean CAR for the Max buy group is the largest and the Mean CAR for the
Max sell group is smallest among 5 groups

HYPOTHETICAL PORTFOLIO
Plot of cumulative abnormal returns to a Ball and Brown type startegy
conditional on perfect foreknowledge of insider trading and sign of un
expected earnings
6 portfolio formed one of 6 groups on both the sign of UE and direction
of trading activity by IT
Rapid divergence of CARs associated with the portfolios with positive UE
Relationship between positive UE and AR is also affected by the
information conveyed by IT
This effect appears rapidly around the end of I Quarter
Differences in the patterns of CAR are attributable to differences in
magnitude of annual UE

QUALITATIVE INSIGHT TO ADDITIVE EFFECTS

3 way interaction is significant caution should be exercised in drawing
inferences about the additive effect of IT (Neter et al (1985))
Regression Results Max Buy/UE+ group regression line is always above
that of Max sell/UE+ group (these lines did not intersect)
Difference in 15 month CAR between the Max Buy/UE+ and Max sell/UE+
groups is about 9% and only a small portion of this difference (2%) is
attributable to differences in unexpected earnings and in slope
coefficients between these 2 groups
IT conveys information not captured by positive UE even after controlling
for interaction effects

QUALITATIVE INSIGHT TO
ADDITIVE EFFECTS
Negative UE the regression line of confirmatory group Max sell/UEis below regression line of contradictory group Max Buy/UE- in the
relevant range of UE
Since neither mean of UE nor the intercept terms for these 2 groups
are significantly different an additive effect of trading cannot be
substantiated
Difference between Car plots between Max sell/UE- and Max
Buy/UE- groups attributable solely to interactive effect

CONCLUSIONS
Insider buying &selling is associated average positive abnormal returns
Buying & Selling activity by insiders does not always precede the public
release of good/bad news by firms
Likely that abnormal returns associated with IT result from security market
acting as if insider conveys information about changes in long term
prospects of the firm which is not conveyed by specific news events
Market seems to view Positive UE as capturing more favorable information
compared to the unfavorable in formation captured by negative
unexpected earnings
Ability of earnings to capture information increases when the sign of UE
and the direction of Intensive IT have similar valuation implications (Max
Buy/UE+ and Max Sell/UE- pairs)

CONCLUSIONS
Inherent uncertainty in the information captured by sign of unexpected earnings appears to
be reduced by confirmatory insider trading and vice versa
IT may be non accounting source of information to explain cross sectional and inter temporal
difference in the marginal response to PE
Annual UE captures only some but all of the info underlying IT
Intensive IT is associated (Max Buy group) is associated with favorable info not fully
captured by that years UE+ (additive effect)
Pattern and magnitude of negative CAR associated with negative UE do not differ
significantly with IT classifications
For all observation with negative UE unfavorable info appears to arrive fairly uniformly over
the holding period
Magnitude of UE for these observations is only weakly associated with CAR
There may be fundamental differences in the ability of IT and accounting earnings to jointly
capture favorable versus un favorable information

THANK YOU

BALL &BROWN STUDY

In 1968 Raymond Ball and Phillip Brown published An empirical evaluation of
accounting income numbers1 in the Journal of Accounting research. After an initial
lukewarm response from the academic community it rapidly became what the
American Accounting Association now calls The seed that made a difference. The
1968 research was the genesis of a now deep body of research on how investors
utilise accounting information and the influence of accounting information on stock
price returns. Our Australian equity investment philosophy is grounded by this
research and much of the empirical and academic research that followed. The Ball
and Brown research transformed the study of accounting by showing what for us
today seems obvious: there is a relationship between stock price fluctuations and
the information contained in accounting reports. At the time of this groundbreaking
paper while researchers had hypothesised on whether there was a connection
between what a company said its earnings per share would be, any changes to this
forecast and its share price 12 months later, no one had empirically tested this. It is
difficult to comprehend how groundbreaking this research was at the time as it is
now widely accepted that accounting information forms the bedrock of many
investment processes..

BALL &BROWN STUDY

However, in the mid 1960s the dominant accounting literature was a priori in nature with little
in the way of empirical testing. The accounting literature at the time had two central
conclusions: 1. Financial statement information prepared under existing reporting rules is
meaningless to investors; and 2. Radical changes in the nature of financial statement
information are required. By 1968 the above conclusions had been around for decades. There
was general agreement at the time on the first conclusion that financial statements prepared
under the given accounting rules were meaningless because they involved the aggregation of
data calculated under heterogeneous rules. Consequently, the research and debate
predominately revolved around the second conclusion that the rules governing financial
statements needed to be changed. Strange as it may seem to investors today, the accounting
literature then had not deemed it fruitful to investigate how financial statement information
affected or was related to share prices. Ball and Brown proposed a number of reasons for this
in their 2012 retrospective2 . One likely reason was data availability; another was that the
share market was not seen as a suitable area of accounting research. A third reason was that
the accounting literature was focused on its own accounting measurement models. Even
amongst this widespread mentality, a significant study had still emerged on the behaviour of
share prices. Fama (1965a3 , 1965b4 ) made the conceptual breakthrough of framing stock
prices as a function of information flows. These days that is taken for granted, however, in the
mid-1960s this concept was an important advance in financial thinking

INSIDER TRADING GENERAL

Building on the notion that both earnings surprises and the level of insider trading
arenoisy signalsof future prospects of the firm, this paper empirically investigates
joint informativeness of the two signals surrounding earnings announcements.
Classification of a large sample of firms in the time period 197781 based both on
the levels of earnings surprise and insider trading results in a finer partition
informationally, compared to using just one signal.
Both additive and interactive effects are observed while analysing the security
market response during the three trading days centered on the day of earnings
announcements. Over a 19-day post announcement period, the results are less
pronounced. The overall pattern of results implies that each signal may contain
information not contained in the other, and/or some of the noise associated with
each signal may be interactively resolved at the time of earnings announcements.
This inference is robust under many measurement alternatives.

INSIDER TRADING GENERAL

the Great Depression, the U.S. Congress passed the Securities Act
of 1933 (SA 1933) (USC, 1933) and the Securities Exchange Act of
1934 (SEA 1934) (USC, 1934). The Securities Act was the first major
federal legislation intended to regulate the sale of newly-issued
securities. Before its passage, securities were regulated only by the
states. The Exchange Act extended federal regulation of securities
trading to securities that were already issued and outstanding. It
also created the SEC, and charged it with regulating insider trading
(USC, 1934). Consequently, the Exchange Act, its amendments, and
additional legislation passed in subsequent decadesmost notably,
the Insider Trading Sanctions Act (ITSA) (Trader, 1984), the Insider
Trading and Securities Fraud Enforcement Act (ITSFEA) (Trader,

DIFFICULT TO PROVE
First, it can be hard to determine what the accused actually knew at the time
the trades were made. Second, it can be challenging to establish that a
particular individual was responsible for a trade, because knowledgeable
traders can hide behind a variety of proxies and complete their trades over
a number of international markets, many of which do not cooperate with the
authorities. Third, wealthy insiders can afford to retain distinguished
attorneys who can drag out cases at significant cost to the U.S. taxpayer.
Fourth, direct evidence of insider trading is rare. Unless the defendant
confesses or the prosecutor has access to testimony from an eyewitness
whistleblower, cases are almost entirely circumstantial. Fifth, burgeoning
swaps and options markets afford insiders more sophisticated tools for
avoiding detection. Finally, the details of insider trading cases can be difficult
to grasp by non-experts, thereby making it more difficult for prosecutors to
convince juries that an actionable crime has been committed

RECENT CHANGES
Insider trading was not commonly prosecuted until the second half of the
20th century. Between 1966 and 1980, the SEC only filed an average of
2.6 cases per year, while between 1982 and 1986, it filed an average of
17.2 cases per year (Seyhun, 1992). After the spike in insider trading in
the late 1980s, highlighted by the indictments of Boesky and Levine,
there were no insider trading prosecutions of Wall Street professionals by
the SEC between 1990 and 1995, and only ten such prosecutions
between 1995 and 2000 (Thomsen, 2006). Insider trading actions have
been much more prevalent in this first decade of the 21st century. The
SEC had 106 successful insider trading convictions between 2001 and
2006. In the first half of the year 2007 alone, the SEC brought
enforcement actions against over 20 defendants for insider trading, most
of which involved insider trading in advance of mergers and acquisitions
(Gorman, 2007).

LEGAL DEVELOPMENTS
First, the SEC has broadened the liability of employers for employee actions (SEC, 2006).
Second, the agency not only publicly announced (Thomsen, 2006) that it was prioritizing hedge
fund insider trading, but it also proceeded to back up (Thomsen, 2008) this commitment. In
2009, three particularly significant hedge fund-related cases were brought within a three-week
period, including the largest such case in the agencys history (Clark, 2010). This focus on
hedge funds was also evident in Europe (Financial Services authority (FSA), 2005). Third, the
SEC announced that an agreement had been reached among the major securities selfregulatory
organizations to centralize insider trading regulation (SEC, 2008). Prior to this announcement,
each equity exchange was responsible for surveillance of trading on its market and any
investigations and enforcement actions involving its members. This centralization of
surveillance should improve detection of insider trading across the equities markets by focusing
expertise and eliminating gaps and duplication among the markets. Fourth, the SEC announced
a policy designed to encourage individuals to cooperate with the agency in its insider trading
investigations (SEC, 2010). Fifth, the agency tried to expand the scope of insider trading law in
the first case to allege insider trading in credit default swaps (CDS) (Clark, 2010). While the case
has yet to be decided, the court refused to dismiss the case (Weidlich, 2009) on the grounds
that it was an issue of fact, not law, as to whether the CDS met the definition of security under
existing insider trading laws (McGrath, 1993)

IT
if insider trades are informative, then markets are not strong-form efficient. One set of studies examines the
relationship between the information contained in earnings announcements and that revealed by the trades
of insiders. For instance, Penman viewed insider trading as a signal of managements assessments of firms
future prospects, and compares the information content of these trades to that in managements earnings
forecasts (Penman, 1985). He found that the insider trading measures that account for the timing of the
trades relative to the release date of the forecast are informative (See also Allen & Ramanan (1995)). A
similar set of studies analyzes the relationship between the information contained in a variety of other
corporate announcements and that revealed by insider trades. In an examination of corporate sell-offs,
Hirschey and Zaima (1989) found that insider trading and ownership structure information were used by the
market in the classification of sell-off decisions as favorable or unfavorable for investors. Thus, they
concluded that this voluntary announcement was informative. Similar results have been found for the
informational role of corporate dividend announcements (John & Lang, 1991). A final set of studies in this
area concerns the predictive content of insider trades for outsiders who seek to secure abnormal returns by
mimicking these trades. Givoly and Palmon (1985) established that the abnormal returns gained by insiders
could be largely due to price changes arising from the disclosure of the trade itself, rather than to
subsequent disclosure of specific news about the company to which the insiders might be privy. Other
authors have confirmed that outsiders can garner abnormal returns by using publicly reported insider trading
data as a leading indicator (Rozeff & Zaman, 1988). This implies that the mere occurrence of insider trading,
whether or not it is informationbased, may generate abnormal returns. Hence, it is not surprising that many
business magazines report information on individual- and aggregate-level insider trading.

IT
However, Seyhun (1992) provided evidence that the abnormal returns
were actually due to the informativeness of the trades by documenting
that, from 1975 to 1989, aggregate insider trading predicted stock
returns. In particular, the aggregate net number of open market
purchases and sales by insiders in their firms predicted up to 60% of the
variation in one-year-ahead aggregate stock returns (Seyhun, 1992).
Lakonishok and Lee (2001) extended the results through 1995 and
indicated that the results were driven by insiders abilities to predict the
returns of smaller firms. These results have also been found to hold in
the United Kingdom (U.K.), where insider trades are even more
informative than those in the U.S (Fidrmuc, 2006). Adding robustness to
these findings is the fact that trades by insiders in options markets have
also been shown to be information-based (Chen & Zhao, 2005).

IT
I did find one study that surmised that insider trades were not
informative (Chakravarty & McConnell, 1999). However, the
persuasive power of this study is limited by the fact that one of the
co-authors later co-authored a paper that argued in favor of there
being an important informational role for options (Chakravarty,
Gulen, & Mayhew, 2004). Thus, given the results discussed above
from all three sets of informativeness studies, the evidence in
support of the contention that insiders trades are informationbased is quite compelling.

IT
Given that insiders trades are informative, is it also clear that they
are abnormally profitable? This is a key question because if insiders
do not, on average, earn abnormal returns (inflation-adjusted
returns in excess of the return that the average investor could have
expected to earn on a similar trade involving a firm with the same
level of systematic risk) on their trades, then one could offer three
compelling reasons that regulators should not concern themselves
with such activities: (1) if, in expectation, insiders cannot profitably
exploit their information, then they would no longer have an
incentive to engage in such trading; (2) there would be no
increased likelihood of harm

IT
because counterparties to insider trades would not be any more likely to lose money
on their average trades; and (3) the information conveyed by the trades would tend
to improve market efficiency. Studies of abnormal profitability involve the event
study methodology. Therefore, a finding of abnormal profitability is conditional on
the model used by the researcher to calculate expected returns being correctly
specified. Also, for parametric model-based estimators other than Generalized
Method of Moments estimators (that only yield asymptotically valid inferences), the
results are conditional on the correct specification of the data generating process for
the employed test statistics. Consequently, the results of these studies should be
scrutinized for possible violations of the following assumptions: (1) normality of the
prediction errors; (2) contemporaneous correlation in the prediction errors; (3) serial
correlation in the prediction errors; (4) parameter stability in the estimates; (5) no
event-induced volatility changes; (6) homoscedasticity of the prediction errors; and
(6) use of prediction errors, not residuals. Hence, I will now examine whether
insiders are, in fact, able to profit from their information-based trades.