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Are Insiders' Trades Informative?

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  • Josef Lakonishok
  • Inmoo Lee

Abstract

We document insider trading activities of all companies listed on the NYSE, Amex, and Nasdaq exchanges during the 1975-1995 period. Insider trading is common, and in more than half the sample firms, there is at least some insider activity in a given year. 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, insider purchases are more informative than insider sales.

Suggested Citation

  • Josef Lakonishok & Inmoo Lee, 1998. "Are Insiders' Trades Informative?," NBER Working Papers 6656, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6656
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    References listed on IDEAS

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    Cited by:

    1. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, 1999. "The Profits to Insider Trading: A Performance-Evaluation Perspective," Harvard Institute of Economic Research Working Papers 1858, Harvard - Institute of Economic Research.
    2. Leslie A. Jeng & Andrew Metrick & Richard Zeckhauser, "undated". "Estimating the Returns to Insider Trading," Rodney L. White Center for Financial Research Working Papers 19-99, Wharton School Rodney L. White Center for Financial Research.
    3. Henryk Gurgul & Paweł Majdosz, 2007. "The informational content of insider trading disclosures: empirical results for the Polish stock market," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 15(1), pages 1-19, March.
    4. Raymond Da Silva Rosa & Nirmal Saverimuttu & Terry Walter, 2005. "Do Informed Traders Win? An Analysis of Changes in Corporate Ownership around Substantial Shareholder Notices," International Review of Finance, International Review of Finance Ltd., vol. 5(3‐4), pages 113-147, September.
    5. Xiang, Jihong & He, Jia & Cao, Min, 2002. "Continuous overreaction, insiders trading activities and momentum strategies," Journal of Multinational Financial Management, Elsevier, vol. 12(4-5), pages 429-449.

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