When corporate insiders buy and sell shares of the company they work for, some people feel compelled to follow.
The rationale is simple: no one knows a company better than an insider. Therefore, they’re more likely to buy if things are getting better and they’re more likely to sell if they think things will get worse.
Unfortunately, the data doesn’t seem to support this.
Jim Stack of Investech (via Barry Ritholtz) has created this annotated chart of the DowJones Industrial Index.
It includes some headlines of insider trading activities.
The chart speaks for itself.
Well, that may be true. Insider selling has never as a whole been a good predictor of market direction but insider buying has evidenced by dueling charts. This one courtesy of the Washington Group.