Decades of academic work suggests insider buying carries information — but only certain kinds.
Few signals in markets are debated as much as insider buying. When a company's own executives put personal money into their stock, it feels meaningful. But does it actually predict anything? The honest answer from decades of academic research is: yes, on average — but with important nuances.
The foundational studies — Lakonishok and Lee (2001), and Jeng, Metrick and Zeckhauser (2003) — examined thousands of insider transactions and reached a consistent conclusion: open-market insider purchases are, on average, followed by modest outperformance over the following months. The effect is statistical and shows up across a large basket of names; it is not a promise on any individual stock.
A recurring theme is the asymmetry between buys and sells. Insiders sell for countless reasons unrelated to their view: paying taxes, diversifying a concentrated position, funding a house. They generally buy for one reason — they believe the stock is undervalued. That is why most researchers and practitioners weight purchases far more heavily than sales.
The most influential modern paper here is Cohen, Malloy and Pomorski (2012), Decoding Inside Information. Their key insight: most insider trading is routine — predictable, calendar-driven activity that carries little information. A smaller set of "opportunistic" trades — buys that break an insider's usual pattern — contain almost all of the predictive power. Stripping out the routine noise dramatically sharpens the signal.
Insider buying is one input, not a crystal ball. Insiders are wrong regularly; a buy does not protect against a bad earnings report, a sector downturn, or a fraud they themselves missed. The edge documented in the literature is a tendency across many observations, not certainty on one. Treat it as a starting point for research, not a verdict.
Separating the opportunistic buys from the routine noise across the whole market is impractical by hand. ClearOcean does it automatically — and emails you only the strongest signals.
See how ClearOcean works →Research finds open-market insider purchases are, on average, followed by modest outperformance — but it is a statistical edge across many names, not a guarantee on any single stock.
Buying is generally considered more informative. Insiders sell for many reasons (diversification, taxes, liquidity); they typically buy for one — they expect the stock to rise.
This guide is educational and informational only — not investment, legal or tax advice, and not a recommendation to buy or sell any security. ClearOcean is a software research service, not a registered investment adviser or broker-dealer. Investing involves risk, including the total loss of capital. Consult a licensed professional.