The dollar profits to insider trading

P. Cziraki, Jasmin Gider

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This article studies insider trading quantities and dollar profits to measure the benefits insiders extract from their superior information. Dollar profits are economically small for a typical insider, the median insider earning $464 per year. The correlation between dollar profits and percentage returns is moderate, because returns are negatively correlated with trade size and frequency. We show that these correlations vary with proxies for insider preferences, firm-level monitoring, and regulatory scrutiny. As a consequence, variables that predict percentage returns fail to predict dollar profits, and past dollar profits are negatively related to future returns. Our work suggests that dollar profits are a better measure for corporate governance applications of insider trading.

Original languageEnglish
Pages (from-to)1547-1580
JournalReview of Finance
Volume25
Issue number5
DOIs
Publication statusPublished - Sep 2021

Keywords

  • insider trading
  • trading profits
  • corporate governance
  • executive compensation

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