Are Insider Trades Informative?

We examine insider trading activities of all companies traded on the NYSE, AMEX, and Nasdaq during the 1975-1995 period. In general, very little market movement is observed when insiders trade and when they report their trades to the SEC. Insiders in aggregate are contrarian investors. However, they...

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Bibliographic Details
Published in:The Review of financial studies 2001-04, Vol.14 (1), p.79-111
Main Authors: Lakonishok, Josef, Lee, Inmoo
Format: Article
Language:English
Subjects:
Abnormal returns
Business structures
Capital market
Financial economics
Financial information
Financial portfolios
Growth stocks
Insider dealing
Insider trading
Investment policy
Investments
Investors
Market capitalization
Rates of return
Sales management
Securities markets
Shareholders
Stock exchange
Stock exchanges
Stock prices
Stock returns
Stockholders
Studies
Trade
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Summary:We examine insider trading activities of all companies traded on the NYSE, AMEX, and Nasdaq during the 1975-1995 period. In general, very little market movement is observed when insiders trade and when they report their trades to the SEC. Insiders in aggregate are contrarian investors. However, they predict market movements better than simple contrarian strategies. Insiders also seem to be able to predict cross-sectional stock returns. The result, however, is driven by insider's ability to predict returns in smaller firms. In addition, informativeness of insiders' activities is coming from purchases, while insider selling appears to have no predictive ability.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/14.1.79