Profiting from uncertainty: A study on the informativeness of insider trades during the COVID-19 pandemic

Abstract: Using publicly available data on insider trades made in constituent companies of the S&P 500, this paper examines the return of- and market reactions to insider trades made during the first six months of the COVID-19 pandemic. Our results show that insider trading activity peaked in the early months of the pandemic, that insiders did possess predictive ability concerning future stock development and that they hence were able to beat the market during our sample period. We conclude that there was no identifiable correlation between insider trading activity and insider returns earned in specific industries. Moreover, the sample data shows that the market priced large stocks more efficiently than small stocks during the COVID-19 outbreak. We find that insider traders were successful in predicting long-term stock price increases and decreases during the COVID-19 pandemic, and that insider trades hence were informative as signals to buy or sell a stock. We also conclude that the stock market largely ignored the signals given by insiders or just did not price it efficiently, which suggests that the market did not trust insider trades as signals during the pandemic although they should have. We do not reach significant results for our difference-in-difference regression which caps our capability of comparing insider trading during the pandemic to insider trading in non-pandemic times.