TY  - JOUR
AU  - Cohen,Lauren
AU  - Malloy,Christopher
AU  - Pomorski,Lukasz
TI  - Decoding Inside Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16454
PY  - 2010
Y2  - October 2010
UR  - http://www.nber.org/papers/w16454
L1  - http://www.nber.org/papers/w16454.pdf
N1  - Author contact info:
Lauren Cohen
Harvard Business School
Baker Library 273
Soldiers Field
Boston, MA 02163
Tel: 617/495-3888
E-Mail: lcohen@hbs.edu

Christopher Malloy
Harvard Business School
Baker Library 277
Soldiers Field
Boston, MA 02163
Tel: 617/495-4383
E-Mail: cmalloy@hbs.edu

Lukasz Pomorski
Rotman School of Management
University of Toronto
105 St. George Street
Toronto, Ontario M5S 3E6
E-Mail: lpomorski@rotman.utoronto.ca
M2  - featured in NBER digest on 2011-04-01
AB  - Using a simple empirical strategy, we decode the information in insider trades.  Exploiting the fact that insiders trade for a variety of reasons, we show that there is predictable, identifiable “routine” insider trading that is not informative for the future of firms. Stripping away these routine trades, which comprise over half the entire universe of insider trades, leaves a set of information-rich “opportunistic” trades that contains all the predictive power in the insider trading universe. A portfolio strategy that focuses solely on opportunistic insider trades yields value-weight abnormal returns of 82 basis points per month, while the abnormal returns associated with routine traders are essentially zero. Further, opportunistic trades predict future news and events at a firm level, while routine trades do not.
ER  -