Trading Skill: Evidence from Trades of Corporate Insiders in Their Personal Portfolios

Presented by: Author: Justin Birru -The Ohio State University, Itzhak Ben-David- The Ohio State University and Andrea Rossi -The Ohio State University

Abstract We study trading patterns of corporate insiders in their own personal portfolios. To do that, we identify accounts of corporate insiders in a large dataset provided by a retail discount broker. We show that insiders overweight firms from their own industry. Furthermore, insiders earn substantial abnormal returns only on stocks from their industry, especially for obscure stocks (small, low analyst coverage, high volatility). Overall, our results suggest that corporate insiders have an informational advantage in stocks from their own industry over investors who are outsiders to the industry.