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Why Does Aggregate Insider Trading Predict Future Stock Returns?

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  • H. Nejat Seyhun

Abstract

This paper documents that, for the period from 1975 to 1989, the aggregate net number of open market purchases and sales by corporate insiders in their own firms predicts up to 60 percent of the variation in one-year-ahead aggregate stock returns. This study also examines whether the ability of aggregate insider trading to predict future stock returns can be attributed to changes in business conditions or movements away from fundamentals. Evidence suggests that both explanations contribute to the predictive ability of aggregate insider trading.

Suggested Citation

  • H. Nejat Seyhun, 1992. "Why Does Aggregate Insider Trading Predict Future Stock Returns?," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1303-1331.
  • Handle: RePEc:oup:qjecon:v:107:y:1992:i:4:p:1303-1331.
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    File URL: http://hdl.handle.net/10.2307/2118390
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