Insider Ownership

Peter Lynch, was noted as saying that “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” Insiders are prevented from buying and selling their company stock within a six-month period: therefore, insiders buy stock when they feel the company will perform well over the medium to long-term.

Nejat Seyhun, a renowned professor and researcher in the field of insider trading at the University of Michigan found that when executives bought shares in their own companies, the stock tended to outperform the total market over the next 12 months. Conversely when they sold shares, the stock underperformed the market.

Source: Investment Intelligence from Insider Trading by Nejat Seyhun