The Dollar Profits to Insider Trading

101 Pages Posted: 19 Dec 2016 Last revised: 23 Apr 2021

See all articles by Peter Cziraki

Peter Cziraki

University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC)

Jasmin Gider

Tilburg University - Tilburg University School of Economics and Management

Date Written: March 31, 2021

Abstract

This paper studies insider trading quantities and dollar profits to measure the benefits insiders extract from their superior information. Dollar profits are economically small for a typical insider, the median insider earning $464 per year. The correlation between dollar profits and percentage returns is moderate, because returns are negatively correlated with trade size and frequency. We show that these correlations vary with proxies for insider preferences, firm-level monitoring, and regulatory scrutiny. As a consequence, variables that predict percentage returns fail to predict dollar profits, and past dollar profits are negatively related to future returns. Our work suggests that dollar profits are a better measure for corporate governance applications of insider trading.

Keywords: insider trading, trading profits, corporate governance, executive compensation

JEL Classification: G14, G34, M52

Suggested Citation

Cziraki, Peter and Gider, Jasmin, The Dollar Profits to Insider Trading (March 31, 2021). Review of Finance, Forthcoming, TILEC Discussion Paper No. DP 2017-005, 14th Annual Mid-Atlantic Research Conference in Finance (MARC), Available at SSRN: https://ssrn.com/abstract=2887628 or http://dx.doi.org/10.2139/ssrn.2887628

Peter Cziraki (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada
+1 416 946 3298 (Phone)

HOME PAGE: http://www.economics.utoronto.ca/petercziraki

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jasmin Gider

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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