Indirect Insider Trading

Abstract

Insiders must disclose indirect trades made through accounts they control, including family, trust, retirement, and foundation accounts. Indirect trades through these accounts are more profitable than direct trades in the insider’s own account. They are also more likely to be made by “opportunistic” insiders who make non-routine trades, or who trade profitably before earnings announcements, or have a short investment horizon. These trades contain more predictive information about earnings surprises and large price changes, and they tend to be made by insiders at firms with high information asymmetry. Insiders also make fewer indirect trades following periods of intense regulatory scrutiny.

Keywords: Insider trading, informed trading, opportunism, trusts, retirement accounts, foundations.

JEL Classification: G12, G14, G18