Market Efficiency and Insider Trading: New Evidence

Rozeff and Zaman revisit the market-efficiency question with explicit controls for firm size and earnings-to-price. Their starting puzzle is that insiders’ own gains are unsurprising given access to firm information, whereas gains to outsiders using already public reports would challenge semi-strong efficiency. The authors show that much of the apparent outsider result overlaps with known cross-sectional characteristics rather than standing alone as a pure insider-trading effect.

Controlling for size and valuation cuts the measured outsider profits roughly in half in their sample. Adding an assumed two-percent transaction cost reduces those outsider results to zero or below, while measured insider profits also shrink materially. The exact historical numbers are not portable to today’s fee schedules or disclosure regime. The durable lesson is that a raw event return is not enough: benchmark choice, exposure to firm characteristics, reporting delay, and implementation costs all change the interpretation.

For Insider Atlas, the paper is a guardrail against a transaction feed becoming an implicit strategy screen. Company and cluster pages expose the observed trades and their provenance. They do not subtract a factor-matched benchmark, model liquidity, include delisting returns, or simulate an outsider’s entry price. Any claim beyond description would require those missing research-design steps. Rozeff and Zaman also reinforce the need to separate the informational content of purchases from coincident value and small-firm effects rather than calling every association an independent signal.

Abstract excerpt

“Controlling for these factors reduces outsider profits by one-half.”

Connections in Insider Atlas

The BGDE cluster and BGDE profile preserve transaction-level facts but do not contain the characteristic-matched return model that Rozeff and Zaman require.

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