Do Retail Investors Follow Insider Trades?
Article first published online: 18 OCT 2011
© 2011 The Author. German Economic Review © 2011 Verein für Socialpolitik
German Economic Review
Volume 13, Issue 3, pages 257–274, August 2012
How to Cite
Stotz, O. (2012), Do Retail Investors Follow Insider Trades?. German Economic Review, 13: 257–274. doi: 10.1111/j.1468-0475.2011.00556.x
- Issue published online: 2 JUL 2012
- Article first published online: 18 OCT 2011
- Attention bias;
- insider investors;
- retail investors;
- trading decisions
On the basis of transaction records of retail investors provided by a large financial institution, this article analyzes whether, in the aggregate, retail investors do copy insider trades. The results suggest that insider trades are indeed an important piece of information for the transactions of retail investors, whose buy–sell imbalances (BSIs) increase in stocks which insiders buy, and whose BSIs decrease following insider sales. These results are robust when considering stock characteristics and general attention effects. With regard to trading insider stocks, retail investors’ preferences for growth and attention are less pronounced when compared with trades of noninsider stocks.