Insider Investment Horizon

Abstract

We examine the relation between the investment horizons of insiders and the information content of their trading activity regarding future stock returns. We conjecture that an insider’s investment horizon establishes a benchmark for expected patterns of continued trading behavior, and thus helps to identify unexpected insider trades, which should be more informative in efficient markets. Consistent with this conjecture, the trades of short horizon insiders are both more unexpected and more informed than those of long horizon insiders, on average. Short horizon insiders and their firms also tend to display attributes that are associated with a greater focus on short-termism.

Keywords: Insider trading, investment horizon, unexpected insider trades, information asymmetry, short-termism

JEL Classification: G12, G14, G18