The main purpose of this paper is to construct an effective corporate governance index that can show the true governance level of any firm. The study investigates the abnormal returns form insider trading in Thailand, and explores the effective corporate governance mechanisms that are able to discourage such trading. Insider trading leads to abnormal returns on purchase transactions based on transaction-level data collected in Thailand during 2009-2012. The research found that the equity market takes around three-months to fully reflect the stock’s value after the public announcement of the insider trade, which can be used to show the level of market efficiency in Thailand. It was also found that the independence of the board and the chairman, as well as block and institutional holdings play a very effective role as corporate governance mechanism, in limiting such abnormal returns from insider trading. The research shows governance mechanisms that really work, and offers clear guidance to regulators on how to prevent insider trading, and will be of benefit to investors who are looking for better transparency and effective corporate governance.