Is ‘Not Trading’ Informative? Evidence from Corporate Insiders’ Portfolios

Financial Analysts Journal, 78(1): 79-100 https://doi.org/10.1080/0015198X.2021.1984825

46 Pages Posted: 18 Nov 2021 Last revised: 17 Mar 2022

See all articles by Luke DeVault

Luke DeVault

Clemson University - Department of Finance

Scott Cederburg

University of Arizona - Department of Finance

Kainan Wang

University of Toledo

Date Written: September 16, 2021

Abstract

Some individuals, e.g., those holding multiple directorships, are insiders at multiple firms. When they execute an insider trade at one firm, they may reveal information about the value of all—both the traded insider position and not-traded insider position(s)—the securities held in their "insider portfolio." We find that insider "not-sold" stocks outperform "not-bought" stocks. Implementable trading strategies that buy not-sold stocks following the disclosure of a sale earn alphas up to 4.8% per year after trading costs. The results suggest that even insider sales that are motivated by liquidity and diversification needs can provide value-relevant information about insider holdings.

Keywords: Insider trades, portfolio insiders

JEL Classification: G11, G14

Suggested Citation

DeVault, Luke and Cederburg, Scott and Wang, Kainan, Is ‘Not Trading’ Informative? Evidence from Corporate Insiders’ Portfolios (September 16, 2021). Financial Analysts Journal, 78(1): 79-100 https://doi.org/10.1080/0015198X.2021.1984825, Available at SSRN: https://ssrn.com/abstract=3964861 or http://dx.doi.org/10.2139/ssrn.3964861

Luke DeVault

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

Scott Cederburg (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Kainan Wang

University of Toledo ( email )

Neff Department of Finance
Mail Stop 103
Toledo, OH 43606
United States

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