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Rev Fin 2001; 14:79-11
© 2001 the Society for Financial Studies

Article

Are insider trades informative?

J Lakonishok and I Lee1
Department of Finance, College of Commerce and Business Administration, University of Illinois at Urbana-Champaign, Champaign, IL 61820, USA
Tel: (217) 333 7185
Fax: (217) 244 3102
1 Korea Advanced Institute of Science and Technology, Korea
E-mail: inmoo@kgsm.kaist.ac.kr

Abstract

We examine insider trading activities of all companies traded on the NYSE, AMEX, and Nasdaq during the 1975-1995 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.


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