Why do Insiders Trade? Evidence Based on Unique Data on Swedish Insiders

Abstract

In this paper, we examine if corporate insiders have other motives for trading besides exploitation of private information. Our results show that insiders’ portfolio rebalancing objectives, tax considerations and behavioral biases play the most important role in their trading decisions. We also find that insiders who have allocated a great (small) proportion of their wealth to insider stock sell more (less) before bad news earnings disclosures. Finally, insider selling is informative for future returns among those insiders who have the greatest proportion of wealth allocated to insider stocks.

Keywords: Insider trading, stock market, earnings announcements, behavioral finance

JEL Classification: M41, G10, K22