Industry Familiarity and Trading: Evidence from the Personal Portfolios of Industry Insiders

We study whether industry familiarity is an advantage in stock trading by exploring the trading patterns of industry insiders in their own personal portfolios. To do so, we identify accounts of industry insiders in a large dataset provided by a retail discount broker. We find that insiders trade firms from their own industry more frequently. Furthermore, they earn abnormal returns exclusively when trading own-industry stocks, especially obscure stocks (small, low analyst coverage, high volatility). In a battery of tests, we find no evidence of the use of private information. The results are most consistent with the interpretation that industry familiarity is an advantage in stock trading.

Keywords: Retail trading, insiders, officers and directors, investor experience

JEL Classification: G11, G14

Suggested Citation: Suggested Citation

Ben-David, Itzhak and Birru, Justin and Rossi, Andrea, Industry Familiarity and Trading: Evidence from the Personal Portfolios of Industry Insiders (December 2016). Charles A. Dice Working Paper No. 2016-8, Fisher College of Business Working Paper No. 2016-03-8, Available at SSRN: https://ssrn.com/abstract=2746498 or http://dx.doi.org/10.2139/ssrn.2746498