Purpose: The purpose is to investigate whether investors can obtain excessreturns by following CEO's who purchase shares in their own company.
Theoretical perspectives: The study includes theories; the effective market hypothesis, information asymmetry and the signaling hypothesis.
Methodology: The study is based on a quantitative method that, through a deductive approach, will test market efficiency when a CEO purchase shares in their own company. The gathered data will pass through models and tests to see whether there exists excess return opportunities
Conclusions: In order to give a result to the main question of the thesis, the study needs to go through two hypothesis. Firstly, hypothesis one; is the share price effected when a CEO purchase shares in his own company. The study establish there is a significant difference to the test value "zero". We reject the null hypothesis and accept the alternative, which means when a CEO buys shares, the share price is effected positively.
When the study establishes there is a positive effect on share price when CEO’s buys shares, we move on to the second hypothesis; can a private investor follow CEO’s purchases and also gain returns? The study determines here is no significant difference in returns opportunities, ie. if one intends to follow a CEO's buying. Therefore we accept the null hypothesis. It was found by studying whether there exists a significant difference between the share price of the first trading day and onwards. The study demonstrates higher return opportunities in the short term in smaller companies compared to big companies. The study also examines the index movement during the same period, and the study establishes there are more return opportunities when following a CEO’s purchases rather than buying index during the same period.