Insider trades and private information: the special case of delayed-disclosure trades, Review of Financial Studies 20(5): 1833-1864.
Are insider trades informative?, Review of Financial Studies 14(1): 79-111.
Three groups in prior price change: [P.sub.0,i] > [P.sub.-60.i], [P.sub.0,i] = [P.sub.-60,i], and [P.sub.0,i] < [P.sub.-60.i], where [P.sub.0.i] is the price of the insider trade and [P.sub.-60,i] is the price of the 60th trade prior to the insider trade.
We calculated the volatilities using the 60 trades prior the insider trade and the 60 trades before the matched trade.
Second, recall from Exhibit 1 that the CARs "reverse" near the time of insider trade execution.
Consistent with prior results for post-announcement trades, both buy and sell portfolios exhibit a price reversal following insider trade execution.
Jenter (2005) attempts to discriminate between the two possible explanations of abnormal profits from insider trades
. He finds no evidence of insider trading profits after adjusting for firm size and BE/ME (contrarian trading indicators).
An added difficulty in extracting useful information from executives' insider trades
is the increased prevalence of equity-based compensation for top managers: most top executives these days receive significant grants of stock options and restricted stock, and hold considerable amounts of both vested and unvested equity in their employer.
Given that the number of insider trades
is quite small for certain quarters, the aggregate one-year pre- and post- event comparisons are undoubtedly more reliable.
Numerous authors have studied legal insider trades
to determine whether insiders earn superior returns by timing their purchases and sales (Pettit and Venkatesh, 1995; Eckbo and Smith, 1998; Lakonishok and Lee, 2001; Jeng, Metrick, and Zeckhauser, 2003).
("[W]hen an insider trades
while in possession of material non-public information, a strong inference arises that such information was used by the insider in trading.
First, because firms without insider trades
are not excluded, we obtain a better estimate of insider-trading propensities and their association with stock returns.