How do Insider Purchases Inform?

70 Pages Posted: 11 Nov 2019 Last revised: 16 Sep 2021

See all articles by Messod D. Beneish

Messod D. Beneish

Indiana University - Kelley School of Business - Department of Accounting

Garen Markarian

HEC - University of Lausanne

Date Written: October 30, 2019

Abstract

The short answer is indirectly and ambiguously. Indirectly, because the price system does not initially act as an information-revealing mechanism when insider purchases are made public. Ambiguously, because before trading, investors bear costs to assess the innate credibility of the insider trade as an informative signal. We find that investors view an open market purchase as credible when they can plausibly infer that risk-averse, under-diversified insiders are willing to bear higher personal risk. These results are consistent with a risk and asymmetry view of purchases where asymmetry is necessary, but not sufficient for insider purchases to inform or to occur.

Keywords: Insider purchases, Risk, Asymmetry, Incidence, Informativeness, Credibility, Compensation Risk, Delta, Vega, Options

JEL Classification: G31; G32; G34; M40

Suggested Citation

Beneish, Messod Daniel and Markarian, Garen, How do Insider Purchases Inform? (October 30, 2019). Available at SSRN: https://ssrn.com/abstract=3478344 or http://dx.doi.org/10.2139/ssrn.3478344

Messod Daniel Beneish (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2628 (Phone)
812-855-4985 (Fax)

Garen Markarian

HEC - University of Lausanne ( email )

UNIL Dorigny
Lausanne, Lausanne 1015
Switzerland

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