An investigation of insider trading by corporate executives found many make profitable trades prior to news announcements.
- Our analysis found that many executives made trades yielding considerable profits just before significant company news announcements.
- Of 20,237 executives we looked at, 1,418 experienced an average gain of 10% in their trades one week before significant news releases. This rate of profit was notably higher than that of executives who faced negative stock movements.
- Many of these trades used specialize, pre-planned arrangements, known as 10b5-1 plans, which spell out certain times of the year, or certain target prices, when corporate executives intend to buy or sell shares of their own company.
- The plans aren’t required to be filed with federal agencies, and executives can change or cancel them without any disclosure. Executives can still trade their companies’ stock outside of their 10b5-1 plan, which further complicates our ability to assess their trading behaviors.
- Some executives’ trades, especially ones just before significant company announcements, have raised eyebrows. Although they might be part of a 10b5-1 plan, the exact details of these plans are typically confidential, leading to speculation about the true intent behind such trades.
- Research has also found that many terminations of 10b5-1 plans tend to occur before positive company news. This suggests that some executives might be avoiding selling shares when they know good news is on the horizon.
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