The Association between Insider Trading and Information Announcements

Abstract

Prior knowledge of certain public information events can lead to abnormal returns on securities. Insiders generally have access to information before the public. Several studies have shown that abnormal returns are earned by portfolios which are constructed on the basis of the trading behavior of corporate insiders. We test whether this demonstrably profitable trading is associated with the public release of information about earnings, dividends, bond ratings, mergers, and bankruptcies. The results are weakly consistent with some use of private information, but most insider trading appears to be unrelated to these information events.