The initial insider trading database included 4889 insider trades
reported between January 2006 and August 2010.
To fix notation, we denote each insider trade
as Trade 0.
The first column shows the percentage of sample announcements where at least one insider trade
(either purchase or sale) occurs during the week.
Collectively, the results of this study suggest that it is possible to identify, out of the tens of thousands of insider trades
made each year, which trades are more likely to be opportunistic and informative.
[See Lee (1997), Bray, Geczy, and Gompers (2000), Eckbo, Masulis, and Norli (2000), Schultz (2003), Chan, Ikenberry and Lee (2003), and Butler, Grullon, and Weston (2005).] (1) Identifying the underlying sources of abnormal profits from insider trades
remains a work in progress in the current literature.
Many firms have established internal procedures that restrict insider trades
to short windows after quarterly earnings announcements, with the goal of preventing managers from taking advantage of short-term inside information.
Letting Aliza Waksal keep her profits from insider trades
To illustrate, examining the Continental Illinois bank failure, during the comparison period there were a total of 4,408 insider trades
reported nationwide and 27.86% of them were insider sales.
By studying the disclosed insider trades
(DIT) in our sample firms over the year prior to the announcement, I examine whether informed trades are detected by the market.
(83.) Jonathan Stempel, Whitman Capital Founder Gets Two Years for Insider Trades
, Reuters (Jan.
642, 651-52 (1997) ("Under the `traditional' or `classical theory' of insider trading liability, [sections] 10(b) and Rule 10b-5 are violated when a corporate insider trades
in the securities of his corporation on the basis of material, nonpublic information.").
Thus, our evidence is consistent with insider trades
exhibiting both significant anticipation of high and low returns and significant reaction after them.