This paper estimates the returns to insiders when they trade their company's stock. We first construct a rolling purchase portfolio that holds all shares purchased by insiders for a six-month period and an analogous sale portfolio that holds all shares sold by insiders for six months. The six-month horizon is chosen to coincide with the short-swing rule of the Securities and Exchange Act of 1934; a rule that prohibits profit-taking by insiders for offsetting trades within six months. We then employ performance evaluation methods to analyze the returns to the purchase and sale portfolios. This approach yields a proxy for the value-weighted returns to insider transactions beginning on the day after their execution and avoids the statistical difficulties that plague event studies on long-horizon returns.
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