Insider Trading and the 2008 Stock Market Crash

This paper examines insider trading during the October, 2008 stock market crash. I show that inside traders did not sell big losers before the crash. However, insiders bought in very large numbers immediately after the crash, and were especially active buyers in small firms, high book-to-market firms, and high-beta firms. The insiders who bought during this period successfully predicted post-crash returns that are substantially larger and longer-lasting than most returns following insider purchases observed during non-crash periods. These results, however, are similar to those in a previous study (Seyhun (1990)) on the 1987 crash. This new evidence of large post-crash returns following insider purchases therefore emerges as a potential empirical regularity for widescale market crashes. ∗University of Mississippi, Department of Economics, 341 Holman Hall, University, MS, 38677, [email protected]