Tilburg Law and Economics Center

TILEC supports and stimulates academic research on the governance of economic activity. It fosters academically path breaking and practically relevant research and aims to be a leading center worldwide.

Peter Cziraki on "Profits from Insider Training"

Insider trading occurs when someone trades company stock on the basis of information that is not available to other market participants. Some forms of insider trading are illegal, as they may impair the functioning of financial markets. Although trading by a company's employees is not generally banned, there are often reporting requirements. In the U.S., insider trades must be reportedto the Securities and Exchange Commission (SEC).

TILEC extramural fellow Peter Cziraki (University of Toronto) and his co-author Jasmin Gider (University of Bonn) analyze an SEC data set on insider trading covering the 1986-2013 period in TILEC Discussion Paper no. 2017-005.

Their aim is to evaluate the dollar profits that insiders obtain from these trades, and thus to have a measure of the magnitude of the costs that insider trading might impose on society. They show that, although insiders typically earn high abnormal returns in percentage terms, the median insider makes economically insignificant dollar profits. This is partly because insiders with the most informative trades (i.e., the ones who generate larger abnormal returns) are also the ones who trade in relatively modest amounts.