This paper from Professor Kenneth Ahern of the Marshall School of Business at UCLA explores questions about the characteristics of inside traders, including:
- Who are inside traders?
- How do they know each other?
- What type of information do they share, and how much money do they make?
The author analyzes all of the insider trading cases filed by the Securities and Exchange Commission and the Department of Justice between 2009 and 2013, identifying 183 insider trading networks.
Among the notable findings:
- The firms in which insiders trade tend to be large high-tech firms with a median market equity of $1 billion
- A significant fraction of leaks are secretly misappropriated from a friend or family member
- Across all types of events, the average stock return from the date of the original leak to the official announcement of the event is 34.9% over an average holding period of 21 trading days:
- Clinical trials generate average gains at 101% in nine trading days
- M&A generates average returns of 43% in 31 trading days
- The average inside trader is 43 years old
- 10% of insiders in the sample are women
- Women are more likely to tip and be tipped by other women
- Of the 461 pairs of tippers and tippees in the sample, 23% are family members, 35% are friends and 35% are business associates
- The most common occupation among insiders is top executive, including CEOs and Directors, accounting for 17% of known occupations
- The median inside trader invests about $200,000 per tip
- Excluding family members, about 43% of pairs met during college
- Insiders are more likely to share tips with people who share a common surname ancestry
- Information tends to flow from subordinates to bosses, from younger tippers to older tippees, and from children to parents