The Past Performance of Insider Trading and Future Insider Trading Activity

Abstract

This study finds evidence that open market purchases made by insiders are negatively influenced by poorly timed insider purchases. Specifically, insiders are sensitive to past loss when conducting open market purchase. These results are robust to various firm characteristics, estimation and sampling methods. Further analyses show that this sensitivity to losses can under certain circumstances enhance insider wealth by helping insiders avoid a loss of 5.7% on open market purchases over the course of the next year while ignoring losses under certain circumstances can help insiders net an average of 8.14% over the following year.