The dollar profits to insider trading
Cziraki,P. Gider,Jasmin
Cziraki,P.
Gider,Jasmin
Abstract
This article studies insider trading quantities and dollar profits to measure the benefits insiders extract from their superior information. Dollar profits are economically small for a typical insider, the median insider earning $464 per year. The correlation between dollar profits and percentage returns is moderate, because returns are negatively correlated with trade size and frequency. We show that these correlations vary with proxies for insider preferences, firm-level monitoring, and regulatory scrutiny. As a consequence, variables that predict percentage returns fail to predict dollar profits, and past dollar profits are negatively related to future returns. Our work suggests that dollar profits are a better measure for corporate governance applications of insider trading.
Description
Date
2021-09
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Publisher
Research Projects
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Keywords
insider trading, trading profits, corporate governance, executive compensation, G14 - Information and Market Efficiency ; Event Studies ; Insider Trading, G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance, M52 - Compensation and Compensation Methods and Their Effects
Citation
Cziraki, P & Gider, J 2021, 'The dollar profits to insider trading', Review of Finance, vol. 25, no. 5, pp. 1547-1580. https://doi.org/10.1093/rof/rfab010