Insider Trading and the Return Predictability of Retail Trading

62 Pages Posted: 12 Nov 2019 Last revised: 2 Feb 2020

See all articles by Ling Tak Douglas Chung

Ling Tak Douglas Chung

National Chengchi University (NCCU); BI Norwegian Business School

Date Written: November 2, 2019

Abstract

Since insider transactions are implemented through personal accounts, the NYSE classifies these trades as retail transactions. Indeed, imbalances of retail trading and insider trading move in lockstep and predict stock returns in the cross-section. A high-minus-low strategy in retail trading imbalances yields an average weekly alpha of 0.15%, of which at least half can be attributed to insider trading. Further, retail trading contains no incremental information about future stock returns for stocks with insider trading and the return predictability of insider trading is stronger among small firms and amid market turbulence.

Keywords: Insider trading, retail trading

JEL Classification: G11, G12, G14

Suggested Citation

Chung, Ling Tak Douglas, Insider Trading and the Return Predictability of Retail Trading (November 2, 2019). Available at SSRN: https://ssrn.com/abstract=3479686 or http://dx.doi.org/10.2139/ssrn.3479686

Ling Tak Douglas Chung (Contact Author)

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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