Comments on “The use of statistical techniques in the interpretation and implementation of South African insider trading legislation”

Abstract

In a recent paper Botha (1995) proposes the use of statistical techniques and models from modem finance to show that the abnormal returns on a firm’s share price in some window period immediately before a specific event was not merely a chance event, but rather that firm-specific information caused material share price changes during the window period. He suggests that this model can thus be used iu South African courts to enforce insider trading legislation. We identify two blemishes in Botha’s reasoning and model, which should be rigorously addressed and resolved before any claim can be made that the method could be practically implemented as a tool to identify’ insider trading.