Industry Familiarity and Trading: Evidence from the Personal Portfolios of Industry Insiders
Charles A. Dice Working Paper No. 2016-8
81 Pages Posted: 14 Mar 2016 Last revised: 29 Dec 2016
Date Written: December 2016
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