Insider Trades and Demand by Institutional and Individual Investors

Richard W. Sias, David A. Whidbee
2008 Social Science Research Network  
We investigate whether insider trading is related to net demand by institutional versus individual investors. Our tests reveal a strong inverse relation between insider trading and institutional demand the same quarter and over the previous year. Additional tests suggest a combination of factors contributes to this relation. First, institutional investors are more likely to provide the liquidity necessary for insiders to trade. Second, insiders are more likely to buy low valuation and low lag
more » ... ation and low lag return stocks while institutions are attracted to the opposite security characteristics. Last, the results are consistent with the hypothesis that insiders are more likely to view their securities as overvalued following a period when institutions were net buyers and undervalued following a period when institutions were net sellers. is hazardous to your wealth: The common stock investment performance of individual investors, Journal of Finance 55, 773-806. Barber, Brad M. and Terrance Odean, 2006, All that glitters: The effect of attention and news on buying behavior of individual and institutional investors, Review of Financial Studies, forthcoming. Barber, Brad M., Terrance Odean, and Ning Zhu, 2006a, Systematic noise, working paper, UC Davis and UC Berkeley. Barber, Brad M., Terrance Odean, and Ning Zhu, 2006b, Do noise traders move markets?, working paper, UC
doi:10.2139/ssrn.917140 fatcat:fbcdwss7pjgn5fzjeh5g6iv22q