Do Corporate Insiders Really Beat the Market?
What academic insider-trading research can tell you, and why a reported purchase is not a guaranteed return or a ready-made strategy.
Academic research finds that some categories of insider transactions contain information about later returns. That does not mean every reported purchase predicts a gain. The trade classification, period, portfolio method and trading costs determine what a study can support.
Read the classification
Cohen, Malloy and Pomorski's Decoding Inside Information distinguishes recurring trading patterns from other transactions. Their research finds that those categories have different information content. It is not a test of AlphaYou or a promise about today's filings.
Separate a finding from a trading strategy
Before copying a reported result, check the historical sample, entry rules, benchmark, holding period and costs. A study can explain a relationship without supplying a practical strategy that reproduces it now.
Read the filing itself
SEC code P includes private as well as open-market purchases. Code A can represent a grant or award. Trading-plan details and footnotes matter. A share-count increase is not sufficient evidence that an executive chose to invest new cash that day.
Use a purchase as a research prompt
Check the buyer's existing ownership, the company's disclosures and the transaction's context. Several purchases can be worth examining, but they do not remove valuation or business risk.
Keep the limits beside the claim
Historical associations are not individual outcomes. This guide does not quote a return percentage or claim that following insider purchases will beat an index.
FAQ
Does every insider purchase predict a gain?
No. Research findings depend on how transactions are classified and measured.
Where can I read the research?
The linked NBER paper provides the original authors' study and method.
Is a Form 4 a buy recommendation?
No. It is a report of ownership activity that can inform further research.
Get the filings this guide is about.
Funds, Congress and insiders, read the moment they file. Free.