Aggregate Insider Trading and Future Stock Returns – International Evidence

In this study, I investigate the informativeness of aggregate equity purchases and sales by senior corporate officers and directors in a sample of 39 countries. I find that countrylevel insider trading signals are associated with future country-level market returns, controlling for other contemporaneous signals such as country-level earnings guidance and analysts’ forecasts, and risk factors such as momentum and aggregate market-to-book ratio. The predictive ability of aggregate insider trades for market returns is driven by countries with lower earnings quality and higher transaction costs. There is also some evidence that insiders trade on foreknowledge of changes in real activity such as future GDP growth. Collectively, the evidence is consistent with corporate insiders around the world trading upon domestic macroeconomic news. The results indicate that regulatory initiatives requiring the timely disclosure of insider trades may provide international investors with useful information for their portfolio allocation.