Economic policy uncertainty and insider trading

Sadok El Ghoul, Omrane Guedhami, Robert Nash and He (Helen) Wang

Journal of Financial Research, 2022, vol. 45, issue 4, 817-854

Abstract: In this article, we examine the effects of economic policy uncertainty (EPU) on insider trading. Two hypotheses predict that EPU is positively related to insider trading volume and profitability: (1) the private benefits hypothesis, which states that insiders exploit their information advantage to realize abnormal profits, and (2) the signaling hypothesis, which states that insiders trade to signal private information to stock market participants. We find that EPU is positively and significantly related to the profitability of insider purchases, and that insiders purchase more frequently during high‐EPU periods. Additional analysis provides strong support for the signaling hypothesis but no support for the private benefits hypothesis.

Date: 2022
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