The Effect Of The Recent Insider-Trading Scandal On Stock P

• Published in: Journal of business ethics Vol. 8; no. 4; p. 299
• Main Authors: Torabzadeh, Khalil M, Davidson, Dan, Assar, Hamid
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer Nature B.V 01-04-1989
• Subjects: Abnormal returns; Boesky, Ivan F; Business ethics; Effects; Ethics; Insider trading; Levine, Dennis; Scandals; Securities industry; Securities markets; Stock prices; Stockholders; Studies
• ISSN: 0167-4544; 1573-0697

Dennis B. Levine was arrested for insider trading in May 1986, and he implicated stock speculator Ivan F. Boesky in November 1986. It is hypothesized that, as a result of this scandal, the expected market-adjusted stock returns are negative for the securities firms and will persist in this way for a reasonably long time. The data needed to calculate the rates of return for 11 major publicly traded securities firms were taken from The Wall Street Journal. Market parameters were estimated with monthly returns from 52 months and up to 5 months before May 12, 1986, the date Levine was charged. The simple market model was used to measure the average abnormal returns and corresponding cumulative abnormal returns. Overall findings provided evidence suggesting significant negative stock price movements as a result of the scandal. Ethical guidelines dictate that insider trading be prohibited as it is more harmful than beneficial.