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

Charles A. Dice Working Paper No. 2016-8

Fisher College of Business Working Paper No. 2016-03-8

81 Pages Posted: 14 Mar 2016 Last revised: 29 Dec 2016

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Justin Birru

Ohio State University (OSU) - Department of Finance

Andrea Rossi

University of Arizona, Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

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

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

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Justin Birru

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Andrea Rossi

University of Arizona, Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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