Are Insider Trades Informative?

Josef Lakonishok and Inmoo Lee

The Review of Financial Studies, 2001, vol. 14, issue 1, 79-111

Abstract: We examine insider trading activities of all companies traded on the NYSE, AMEX, and Nasdaq during the 1975-95 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. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 2001
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The Review of Financial Studies is currently edited by Itay Goldstein

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