A logit model of retail investors' individual trading decisions and their relations to insider trades

Olaf Stotz and Dominik Georgi

Review of Financial Economics, 2012, vol. 21, issue 4, 159-167

Abstract: Among the various external information sources that influence individual investors' trading decisions, no research has considered the important influence of insiders' transactions. Retail investors might copy the behavior demonstrated by insiders' trading; therefore, this study establishes an approach to estimate the buying probability for a certain stock by a certain investor at a certain point in time and analyzes whether insider trade reports influence this probability. Using a sample of more than 270,000 retail trades in Germany between 2008 and 2009, along with more than 3000 insider trades in the same period, we find evidence of copying of insiders' trades by retail investors. The basic mimicry hypothesis holds, even when we consider an information event hypothesis and an insider attention effect hypothesis as alternative explanations. A robustness test also supports the findings.

Keywords: Insider investors; Retail investors; Trading decisions (search for similar items in EconPapers)
JEL-codes: D01 G11 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:21:y:2012:i:4:p:159-167

DOI: 10.1016/j.rfe.2012.04.001

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