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The Effect of Insider Trading on Average Rates of Return

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  • Robert Heinkel
  • Alan Kraus

Abstract

This paper examines the profitability of insider trading. The authors examine insider trading on the Vancouver Stock Exchange where it might be argued that there are larg e informational asymmetries. Besides the traditional "event study" approach, they develop portfolio performance measures for the aggrega te insider and his/her trading partner (by definition, the outsider) that measure portfolio return over the entire sequence of insider (an d outsider) trades. The major conclusion is that, despite being able to identify particular profitable insider trades, the insiders do not , over all their trades, outperform the outsiders. This conclusion ha s important implications for the economic viability of the exchange.

Suggested Citation

  • Robert Heinkel & Alan Kraus, 1987. "The Effect of Insider Trading on Average Rates of Return," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 588-611, August.
    • Handle: RePEc:cje:issued:v:20:y:1987:i:3:p:588-611
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    Cited by:

    1. Rebecca Pham & Marcel Ausloos, 2022. "Insider trading in the run‐up to merger announcements. Before and after the UK's Financial Services Act 2012," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3373-3385, July.

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