Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective

62 Pages Posted: 12 Feb 1999

See all articles by Leslie A. Jeng

Leslie A. Jeng

Harvard Business School

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Abstract

This paper uses performance-evaluation methodology to estimate the returns earned by insiders when they trade their company's stock. Our methods are designed to estimate the returns earned by insiders themselves and thereby differ from the previous insider-trading literature, which focuses on the informativeness of insider trades for other investors. We find that insider purchases earn abnormal returns of more than 6 percent per year, and insider sales do not earn significant abnormal returns. We compute that the expected costs of insider trading to non-insiders are about 10 cents for a $10,000 transaction.

JEL Classification: G28

Suggested Citation

Jeng, Leslie A. and Zeckhauser, Richard J. and Metrick, Andrew, Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective. The Review of Economics and Statistics, pp. 453-471, May 2003. Available at SSRN: https://ssrn.com/abstract=146029 or http://dx.doi.org/10.2139/ssrn.146029

Leslie A. Jeng

Harvard Business School

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,489
rank
11,093
Abstract Views
6,336
PlumX Metrics