Publication Type
Working Paper
Version
publishedVersion
Publication Date
11-2020
Abstract
This paper examines the trading patterns of retail investors following insider trading and the corresponding price impact. Retail investors follow the opportunistic purchases by insiders, but not their routine purchases. Neither investor attention nor common information such as earnings announcements or analysts forecast re- visions explains the results. They keep following insider purchases in subsequent four quarters. Moreover, for stocks with opportunistic insider purchases, those that retail investors bought yield higher cumulative abnormal returns than those that retail investors sold. The effect is mostly driven by the information compo- nent of the retail trades, rather than liquidity provision or temporary price pres- sure, and stronger for stocks with greater informational uncertainty and higher arbitrage costs. Variance ratio tests also suggest price efficiency improvements for stocks bought by retail investors following opportunistic insider purchases. The evidence is mostly consistent with retail investors learning from opportunistic insider purchases, and their trading helping expedite price discovery.
Keywords
Retail order flow; Insider trading; Price discovery; Return predictability; Informed investors
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
70
Citation
BOEHMER, Ekkehart; SANG, Bo; and ZHANG, Zhe.
Can retail investors learn from insiders?. (2020). 1-70.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6801
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.