{"id":479,"date":"2012-03-23T09:45:42","date_gmt":"2012-03-23T16:45:42","guid":{"rendered":"http:\/\/www.aikapa.com\/Financial_Bites\/?p=479"},"modified":"2017-09-27T14:36:53","modified_gmt":"2017-09-27T21:36:53","slug":"how-insiders-can-legally-profit-from-insider-information","status":"publish","type":"post","link":"https:\/\/www.aikapa.com\/Financial_Bites\/?p=479","title":{"rendered":"How insiders can legally profit from insider information"},"content":{"rendered":"
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<\/abbr><\/cite>\u00a0Insight on how company insiders can still profit from insider information<\/strong><\/p>\n<\/div>\n<\/div>\n
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Despite efforts by the Senate and president to reduce profiting from inside information there remain loopholds for corporate insiders that may be useful to those who are observant. Corporate insiders whose companies are about to be bought by rivals are forbidden from buying shares ahead of time to profit from the price jumps that takeover announcements often bring. But they accumulate plenty of shares just the same.
\nThat\u2019s because company managers are often paid partly in stock<\/strong>. Many sell these shares at regular intervals, whether to use the cash for other purposes or to keep their personal assets from becoming too concentrated in a single stock.<\/strong>
\nFor this reason, managers who decline to buy their companies\u2019 shares ahead of takeovers may nonetheless accumulate them if they also halt their typical selling<\/strong>.<\/p>\n

Anup Agrawal of the University of Alabama and Tareque Nasser of Kansas State University studied 3,700 takeovers announced between 1988 and 2006. They compared trading in the year before takeover announcements (the \u201cinformed period\u201d) with the year before that (the \u201ccontrol period\u201d).\u00a0 They found that insiders tended to reduce their buying during the informed period, but they reduced their selling even more<\/strong>. The result was an increase in net buying. Over the six months prior to deal announcements, the dollar amount of net purchases for officers and directors at target firms rose 50% relative to ordinary net purchase levels.<\/p>\n

This \u201cpassive insider trading,\u201d as the authors call it, is legal. But it is profitable? Agrawal and Nasser didn\u2019t look at returns, but a study published a year ago in the Journal of Multinational Financial Management offers clues. Researchers from Australia\u2019s Commonwealth Bank and Deakin University looked at U.S. takeovers between 2001 and 2006. They found that shares of target firms tended to outperform by nearly seven percentage points during the 50 trading days preceding deal announcements.<\/p>\n

Nothing illegal in these situation just good old fashion financial planning can yield a net gain if properly structured.<\/p>\n

*Edi Alvarez, CFP\u00ae
\n<\/sup>BS, BEd, MS<\/p>\n

www.aikapa.com<\/strong><\/a><\/p>\n

===================================================<\/p>\n

*Inspired by “An Insider Trading Loophole Congress Didn\u2019t Close” by Jack Hough | SmartMoney | March 23, 2012
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\u00a0Insight on how company insiders can still profit from insider information Despite efforts by the Senate and president to reduce profiting from inside information there remain loopholds for corporate insiders that may be useful to those who are observant. Corporate … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28,40,8,7],"tags":[51,177,176],"class_list":["post-479","post","type-post","status-publish","format-standard","hentry","category-business-planning","category-investing","category-retirement-planning","category-tax-planning","tag-investing-2","tag-retirment","tag-stock-purchase"],"_links":{"self":[{"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=\/wp\/v2\/posts\/479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=479"}],"version-history":[{"count":6,"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=\/wp\/v2\/posts\/479\/revisions"}],"predecessor-version":[{"id":840,"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=\/wp\/v2\/posts\/479\/revisions\/840"}],"wp:attachment":[{"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=479"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=479"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.aikapa.com\/Financial_Bites\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}