What Do Corporate Insiders Do with Newly Vested Equity?

In a new study, we examine restricted-stock vesting events, through which directors and high-level executives (“insiders”) receive stock but face fewer reporting requirements and selling restrictions than if the stock had been purchased on the open market. Using a detailed dataset that tracks restricted stock vesting schedules from Equilar, we find that insiders realize gains by retaining vested stock. A trading strategy that mimics insiders’ trading patterns by buying on the vesting date and selling on the subsequent open-market sales date yields positive abnormal returns.

The vast majority of previous insider-trading literature focuses on open-market transactions, but insiders acquire significantly … Read more