Examine the accompanying figure, which presents cumulative abnormal returns both before and after dates on which insiders buy or sell shares in their firms. How do you interpret this figure? What are we to make of the pattern of CARs before and after the event date?

Event day relative to insider trading day Cumulative daily average prediction errors (%)

200 100 0 100 200 300 Sales Purchases 2

1 0

1 2

3 4

Source: Reprinted from Nejat H. Seyhun, “Insiders, Profits, Costs of Trading and Market Efficiency,” Journal of Financial Economics 16 (1986). Copyright 1986 with permission from Elsevier Science. LO.1