Academic research confirms what most investors suspect — corporate insiders outperform the market. The edge is real, but only if you follow the right trades.
Corporate insiders — CEOs, CFOs, board members — know their companies better than any analyst. When they spend their own money buying shares on the open market, they're making a bet with real skin in the game. Decades of academic research confirm that these purchases consistently predict market-beating returns.
In 2001, researchers from the University of Illinois examined every company on the NYSE, AMEX, and Nasdaq over a 20-year period. Their conclusion: insider purchases reliably predict future stock returns — particularly in smaller firms where information asymmetry is greatest. Insider selling, by contrast, showed no predictive ability. This asymmetry has since been confirmed by virtually every study that followed. A separate team then quantified the magnitude using 21 years of US insider transactions. They found that insider purchases earn abnormal returns of over 6% per year — with half of those returns accruing within the first month.
International data tells a similar story. A study of UK insider transactions found even larger abnormal returns than in the US — likely because the UK's faster reporting rules make the signal more actionable. The most comprehensive test came from German researchers who analyzed 3.7 million insider transactions across 34 countries between 2000 and 2021. Their composite signal — combining multiple conviction filters simultaneously — generated over 8% annualized excess return across both developed and emerging markets.
The research also identifies a crucial distinction between routine trades and high-conviction signals. A 2012 study analyzing over 65,000 transactions across 17 Western European countries introduced a simple scoring model to separate high, medium, and low quality signals. The results were dramatic:
• High conviction purchases: +20.94% average 12-month excess return
• Medium conviction purchases: +1.32% average 12-month excess return
• Low conviction purchases: −3.40% average 12-month excess return
The same trades, filtered correctly, outperform by over 20% annually. Filtered poorly, they underperform. The edge is entirely in the filtering. The most informative purchases share common characteristics identified across the literature:
• Clustered trades where multiple insiders at the same firm move in the same direction within a short time
• Infrequent traders who aren't following a vesting schedule
• Stocks that have recently underperformed, where insiders are buying the dip in their own company
Every major study confirms the same asymmetry across US, European, and global data: insider sells carry far less signal than purchases. The reason is simple but important. Insiders sell for dozens of reasons that have nothing to do with their view on the stock. A founder might sell to buy his daughter a house, a CFO might sell to cover a tax bill, a board member might cash out for that yacht he's been eyeing for so long. A sale tells you little about conviction. A purchase is different. When an executive goes out to buy shares on the open market, outside of any compensation plan, there is essentially one plausible motive: they believe the stock is undervalued and going up.
The precise magnitude varies across studies, and not every approach to tracking insider trades yields the same results. The research nonetheless is crystal clear: there is an undeniable edge in tracking the trades of company insiders. The challenge is accessing those disclosures fast enough and filtering them well enough to act on. That is exactly what we built the Insider Transaction Terminal for.
[1] Lakonishok & Lee (2001) — "Are Insider Trades Informative?" — Review of Financial Studies
[2] Jeng, Metrick & Zeckhauser (2003) — "Estimating the Returns to Insider Trading" — Review of Economics and Statistics
[3] Fidrmuc, Goergen & Renneboog (2006) — "Insider Trading, News Releases, and Ownership Concentration" — Journal of Finance
[4] Betzer & Theissen (2009) — "Insider Trading and Corporate Governance: The Case of Germany" — European Financial Management
[5] Bajo & Petracci (2006) — "Do What Insiders Do" — Studies in Economics and Finance
[6] Dardas (2012) — "Identifying Profitable Insider Transactions" — The Journal of Investing
[7] Heckmann, Jacobs & Schwarz (2023) — "Synthesizing Information-Driven Insider Trade Signals" — University of Duisburg-Essen
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