Are insider buys bullish? What the research says
By InsiderAlpha · Published · Updated
Written from SEC primary filings, with every rule cited inline. Editorial standards.
Some of them have been, on average, in the studies that looked. Researchers who sorted insider purchases by who bought and how routinely found that certain groups of purchases were followed by better returns than the market expected. Taken across every insider trade, the effect is much weaker. And a result measured over many trades and years is not a forecast for the purchase in front of you.
What the research found
Lakonishok & Lee (2001) found that insider purchases predicted positive future returns, with the effect strongest in small-cap stocks. Cohen, Malloy & Pomorski (2012) split insiders into routine traders, who trade on a fixed schedule, and "opportunistic" ones, who trade irregularly. The abnormal returns they measured came from the opportunistic trades.
Buying and selling are not mirror images in this work. An insider can sell for taxes, a house or diversification. There are fewer reasons to put your own cash into your employer's stock, which is one reason the studies read purchases as more informative than sales.
Follow insider buying without reading every filing
We read every Form 4 as it is filed and rank the insider purchases worth a look into a daily trading plan, so you do not have to open each filing yourself.
Free by email: highlights from the previous session's daily trading plan each market morning, plus a Friday roundup of the week's insider buying.
Basic reads each plan from the previous close, before the open. Compare plans or see the daily plan.
What people usually filter for
- Open-market purchases (code P) paid for with the insider's own money, not grants or option exercises. Code P also covers private and derivative purchases, so read the row first (the code guide shows how).
- Senior insiders: the CEO, CFO or chair, or a 10% owner.
- Size measured against the insider's pay and existing holdings, on a basis you can state.
- Cluster buying by several insiders in a short window, once you have checked they are really separate buyers.
- Irregular timing, rather than a disclosed schedule.
What usually gets filtered out
- Equity awards (A) and option exercises (M). These are pay, not a decision to buy.
- Very small purchases that barely change the insider's holding.
- Purchases under a disclosed Rule 10b5-1 plan, where the timing was set in advance. An unchecked plan box does not prove the opposite.
- Thinly traded micro-caps, where the spread and volume may not let you trade anywhere near the insider's price.
Limits to keep in mind
Insiders are not market timers. They often buy into a decline that keeps going for a while before it turns. The studies measure a tendency across many trades held for months, not a guarantee on any single name. Their samples, benchmarks and trading costs also differ from yours, so a published return is not an expected return for a live ticker.
Sales are harder still. Insiders sell for taxes, diversification and personal reasons all the time, so "insider selling" on its own tells you much less than insider buying. The selling guide covers how to read one.
How InsiderAlpha uses this
The daily trading plan ranks recent purchases by Alpha Score and lists them top down. A high score means a purchase ranks near the top of that day's plan. It does not mean the stock will rise.
See this week's largest insider purchases → · The full buying checklist →
This article is informational and is not investment advice.