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Insider trading and anomalies

Author

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  • Tian, Jiaxing
  • Xiang, Hong
  • Xu, Minghai

Abstract

We show that the insider trading pattern on anomaly long-short portfolio stocks can forecast anomaly returns. Specifically, we use the fraction of anomaly long-leg (short-leg) stocks being bought (sold) by insiders as a signal to extract insiders’ information on expected returns of the anomaly. Based on a composite anomaly measure that combines 11 prominent anomalies, we show that the insider trading signal significantly forecasts anomaly returns both in-sample and out-of-sample. These findings also help disentangle the risk-based and the mispricing-based explanations for anomaly returns.

Suggested Citation

  • Tian, Jiaxing & Xiang, Hong & Xu, Minghai, 2025. "Insider trading and anomalies," Journal of Empirical Finance, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:empfin:v:84:y:2025:i:c:s092753982500088x
    DOI: 10.1016/j.jempfin.2025.101666
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