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

81 Pages Posted: 28 Mar 2016 Last revised: 5 Dec 2024

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: March 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.

Suggested Citation

Ben-David, Itzhak and Birru, Justin and Rossi, Andrea, Industry Familiarity and Trading: Evidence from the Personal Portfolios of Industry Insiders (March 2016). NBER Working Paper No. w22115, Available at SSRN: https://ssrn.com/abstract=2755387

Itzhak Ben-David (Contact Author)

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

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Justin Birru

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

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Andrea Rossi

University of Arizona - Department of Finance ( email )

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