Synthesizing Information-Driven Insider Trade Signals

Abstract

We propose a simple approach to synthesize presumably information-driven insider trading signals for the cross-section of stocks. We find that the resulting composite strategy can predict returns, predominantly in equal-weighted portfolios, in our global sample. The results indicate that the benefits of the composite strategy reflect a short-term informational advantage of insiders. Finally, cross-country analysis reveals that varying insider trading restrictions between countries have limited explanatory power for the benefits of the composite strategy.

Keywords: Informed trading, insider trading, return predictability, global stock markets

JEL Classification: G12, G14