Question

According to results by Seyhun, the main reason that investors cannot earn excess returns by following inside trades after they become public is that ______________.A. the information isn't available for at least 2 weeksB. transaction costs offset abnormal returnsC. the SEC late-disclosure rule doesn't apply to insidersD. insiders don't have to disclose their trades

Answer 1

Answer: Option B  

Explanation: In simple words, insider trading refers to the situation when some inside officials of a company trades their stock on the basis of some private information they have.

But according seyhun, when the firms go public one need to bore the transaction cost for selling and purchasing the stock of company. Thus, the information value will be cutoff by the transaction cost and excess return could not be earned.

Hence from the above we can conclude that the correct option is B.