Retail Investor Attention and Insider Trading
63 Pages Posted: 22 Apr 2021 Last revised: 22 Aug 2022
Date Written: August 8, 2022
We identify a new mechanism of opportunistic insider trading that is associated with attention-driven mispricing. Insiders are more likely to sell their company’s stock after increases in retail attention, and they are more likely to buy after attention decreases. A long-short insider-trading portfolio conditioned on attention generates 65.8% higher abnormal returns than that of an unconditional portfolio. The results are stronger for lottery stocks and for firms with higher retail ownership or weaker governance. The attention-based trading is unrelated to firm fundamentals, is less likely to trigger SEC enforcement actions, and becomes more prevalent following waves of SEC enforcement.
Keywords: Insider Trading; Retail Attention; Governance; SEC Enforcement
JEL Classification: G02, G12, G14
Suggested Citation: Suggested Citation