The Effect of Insider Trading on Average Rates of Return.

Abstract

This paper examines the profitability of insider trading. The authors examine insider trading on the Vancouver Stock Exchange where it might be argued that there are larg e informational asymmetries. Besides the traditional "event study" approach, they develop portfolio performance measures for the aggrega te insider and his/her trading partner (by definition, the outsider) that measure portfolio return over the entire sequence of insider (an d outsider) trades. The major conclusion is that, despite being able to identify particular profitable insider trades, the insiders do not , over all their trades, outperform the outsiders. This conclusion ha s important implications for the economic viability of the exchange.