Trading Against the Grain: When Insiders Buy High and Sell Low

Abstract

Both behavioral biases and informational advantages can drive insider trades. We first document that U.S. corporate insiders anchor on the 52-week low (high) for stock purchases (sales). We then find that insider trades made when the stock price is far away from its anchor levels are more informative, suggesting that when insiders trade against the anchoring bias, private information is providing the catalyst to overcome the bias. We further show outside investors can reap sizeable abnormal returns by piggybacking on insiders who make these “buy high and sell low” trades.

Keywords: Insider trade; anchoring bias, 52-week high and 52-week low, private information

JEL Classification: G11, G14, G15