Rotman School of Management
University of Toronto
105 St. George Street
Toronto, Ontario M5S 3E6
NBER Working Papers and Publications
|October 2010||Decoding Inside Information|
with Lauren Cohen, Christopher Malloy: w16454
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, wh...
Published: “Decoding Inside Info rmation” (with Christop her Malloy and Lukasz Pomorski), 2012. Journal of Finance 67, 1009-1044.