A logit model of retail investors' individual trading decisions and their relations to insider trades
AbstractAmong the various external information sources that influence individual investors' trading decisions, no research has considered the important influence of insiders' transactions. Retail investors might copy the behavior demonstrated by insiders' trading; therefore, this study establishes an approach to estimate the buying probability for a certain stock by a certain investor at a certain point in time and analyzes whether insider trade reports influence this probability. Using a sample of more than 270,000 retail trades in Germany between 2008 and 2009, along with more than 3000 insider trades in the same period, we find evidence of copying of insiders' trades by retail investors. The basic mimicry hypothesis holds, even when we consider an information event hypothesis and an insider attention effect hypothesis as alternative explanations. A robustness test also supports the findings.
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Bibliographic InfoArticle provided by Elsevier in its journal Review of Financial Economics.
Volume (Year): 21 (2012)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/620170
Insider investors; Retail investors; Trading decisions;
Find related papers by JEL classification:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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