Are Insider Sales Under 10b5-1 Plans Strategically Timed?

Abstract

Previous research and numerous media articles suggest that sales executed under 10b5-1 trading plans are strategically timed. However, we find no significant difference in stock price performance following plan sales and non-plan sales. We demonstrate that price contingent orders (e.g. limit orders), a common feature in trading plans, give rise to empirical patterns that have been taken as evidence of strategic timing of sales. Event study methods employed in previous research on plan sales are shown to give biased estimates of post-event abnormal returns when the events are not exogenous to past returns.

Keywords: insider trading, SEC Rule 10b5-1, event studies

JEL Classification: G14, G18, K22