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The Relation between Aggregate Insider Transactions and Stock Market Returns

Published online by Cambridge University Press:  06 April 2009

Mustafa Chowdhury ,
John S. Howe  and
Ji-Chai Lin
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Abstract

A vector autoregressive (VAR) model is used to examine the relation between aggregate insider transactions and stock market returns. Consistent with the extant literature, there is some predictive content associated with aggregate insider transactions, but its magnitude is slight. In contrast, market returns have substantial influence on the aggregate purchases and sales of corporate insiders. The findings suggest that: 1) the degree of mispricing observed by insiders is small; 2) very little of the mispricing is associated with unanticipated macroeconomic factors; and 3) investors cannot use aggregate insider transactions to profitably predict future market returns over the following eight weeks.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 28 , Issue 3 , September 1993 , pp. 431 - 437
Copyright
Copyright © School of Business Administration, University of Washington 1993

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