Insider Trading Filing and Intra-Industry Information Transfer

Abstract

This paper examines whether insider trading disclosures have information transfer effects within the same industry. We find that on the dates an insider trade is filed with the SEC, the stock returns of industry peers are positively correlated with the direction of the trade, i.e., industry peers have positive (negative) returns when purchases (sales) are disclosed. This effect varies across firms: insider trading filings from industry leaders have stronger information transfer effects on their industry peers while rival firms experience less positive information transfer effects. Our results are driven by insider sales, prompting us to investigate the relation between insider selling and industry-level information. We find that insider selling occurs when industries are overvalued. Taken together, our evidence suggests that insider trading filings contain industry-level information and affect the stock returns of industry peers.