Legal Insider Trading Profits Often Amount to Peanuts

How much do corporate insiders make on their trades? It has long been shown that insiders realize significant positive abnormal returns on their transactions, in percentage terms. Surprisingly, however, there has been little research examining insiders’ dollar profits, even though it is dollar profits, rather than percentage returns, that insiders themselves likely care about.

Why is it important to make this distinction? Even if insiders realize high percentage returns, they may trade small amounts or trade infrequently, so that overall profits are still small. Conversely, even small percentage returns may lead to high profits if an insider trades large … Read more