Insider Trading Returns

By:  Brad Grounds The question we are trying to answer today is this: Does the size of a corporate insider's trade relative to the size of his or her past trades in the same company's stock correlate with the return achieved by such trade?  Put another way, do abnormally large purchases by insiders earn, on average, higher returns than smaller purchases by the same insider?     What Constitutes A Large Trade? A number of academic studies suggest that larger purchases do correlate with larger returns.  However, it is important to note how each study defines large trades.  Below are the two common ways that the line of demarcation between "large" and "small" trades have been defined in a number of different studies, as well as the potential shortcomings of such approaches. Total number of shares purchased - Using this method, the total number of shares purchased serve as the proxy to segment trades into groups.  Trades with a very high number of shares - perh

  Returns from Insider Trading  Many academics and investors have studied insider trading.  But most have studied the returns  to the insider  and not the return  to a retail investor  who, using only publicly available information about such trades, mirrors all such trades.  This website will attempt to remedy that problem by presenting a wide range of studies of insider trading data, using my own database containing millions of insider transactions reported on the SEC's website over the past 19 years, with a focus on hypothetical returns to  retail investors  assuming such investor mirrored the trades of insiders after such trades were publicly reported.   Insiders Tend to Outperform the Market on Their Purchases and, Perhaps, Their Sales The evidence suggests that insiders make, on average, market-beating returns on purchases of the stock of the company that they run.  As this website develops more fully, you will see some of that evidence presented on this website.   Some evide