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Do Retail Investors Follow Insider Trades?

Author

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  • Stotz Olaf

    (Frankfurt School of Finance and Management, Frankfurt, Germany)

Abstract

On the basis of transaction records of retail investors provided by a large financial institution, this article analyzes whether, in the aggregate, retail investors do copy insider trades. The results suggest that insider trades are indeed an important piece of information for the transactions of retail investors, whose buy-sell imbalances (BSIs) increase in stocks which insiders buy, and whose BSIs decrease following insider sales. These results are robust when considering stock characteristics and general attention effects. With regard to trading insider stocks, retail investors’ preferences for growth and attention are less pronounced when compared with trades of noninsider stocks.

Suggested Citation

  • Stotz Olaf, 2012. "Do Retail Investors Follow Insider Trades?," German Economic Review, De Gruyter, vol. 13(3), pages 257-274, August.
    • Handle: RePEc:bpj:germec:v:13:y:2012:i:3:p:257-274
    DOI: 10.1111/j.1468-0475.2011.00556.x
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    Cited by:

    1. Stotz, Olaf & Georgi, Dominik, 2012. "A logit model of retail investors' individual trading decisions and their relations to insider trades," Review of Financial Economics, Elsevier, vol. 21(4), pages 159-167.

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