Insider Sentiment and Market Returns – International Evidence

In this study, I investigate the predictive content of aggregate equity purchases and sales by senior corporate officers and directors in a sample of 39 countries. I find that countrylevel net purchases by corporate insiders are positively associated with future countrylevel market returns, controlling for other contemporaneous signals and risk factors. The predictive content of aggregate insider trades is driven by countries with less transparent information environments and, to a lesser extent, lower investor protection. 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, and their aggregate trading behavior having greater predictive content in countries where the quality of capital market institutions is relatively lower. The results indicate that regulatory initiatives requiring the timely disclosure of insider trades may provide international investors with useful information for their portfolio allocation.