over the months following purchases or sales by insiders. For months in which insider purchasers of a stock exceeded insider sellers of the stock by three or more, the stocks had an abnormal return in the following eight months of about 5%. When insider sellers exceeded inside buyers, however, the stock tended to perform poorly.     SUMMARY 1. Firms issue securities to raise the capital necessary to finance their investments. In- vestment bankers market these securities to the public on the primary market. Invest- ment bankers generally act as underwriters who purchase the securities from the firm and resell them to the public at a markup. Before the securities may be sold to the pub- lic, the firm must publish an SEC-approved prospectus that provides information on the firms prospects. 2. Issued securities are traded on the secondary market, that is, on organized stock ex- changes, the over-the-counter market, or, for large traders, through direct negotiation. Only members of exchanges may trade on the exchange. Brokerage firms holding seats on the exchange sell their services to individuals, charging commissions for executing trades on their behalf. The NYSE has fairly strict listing requirements. Regional ex- changes provide listing opportunities for local firms that do not meet the requirements of the national exchanges. 3. Trading of common stocks in exchanges takes place through specialists. Specialists act to maintain an orderly market in the shares of one or more firms, maintaining "books"     6 See, for example, J. Aharony and I. Swary, "Quarterly Dividend and Earnings Announcement and Stockholders Return: An Em- pirical Analysis," Journal of Finance 35 (March 1980). 7 See, for example, George Foster, Chris Olsen, and Terry Shevlin, "Earnings Releases, Anomalies, and the Behavior of Security Returns," The Accounting Review, October 1984. 8 Jeffrey F. Jaffe, "Special Information and Insider Trading," Journal of Business 47 (July 1974). I. Introduction 3. How Securities Are Traded The McGraw−Hill Companies, 2001           CHAPTER 3 How Securities Are Traded 97     of limit-buy and limit-sell orders and matching trades at mutually acceptable prices. Specialists also will accept market orders by selling from or buying for their own in- ventory of stocks.