Do Insider Trades Predict Future Stock Returns? Evidence From Indian Stock Market
- IJLLR Journal
- 3 minutes ago
- 2 min read
Anoushka Kaw, DME Law College, Affiliated To GGSIPU
Dr Neha Bahl, Professor, DME Law College, Affiliated To GGSIPU
ABSTRACT
This study investigates whether insider trading activity predicts future stock returns in the Indian equity market. Using a comprehensive sample of firms listed on the National Stock Exchange of India and the Bombay Stock Exchange over the period 2015–2024, the analysis examines insider purchase and sale transactions disclosed under the regulatory framework of the Securities and Exchange Board of India (SEBI). The study employs an event study methodology to estimate short- and medium-term abnormal returns around insider trade disclosures, using the NIFTY 50 as the market benchmark. In addition, panel regression models are applied to assess the predictive power of insider transactions after controlling for firm-specific characteristics such as size, book-to-market ratio, leverage, and prior stock performance. The findings reveal that insider purchases are followed by statistically significant positive abnormal returns, indicating that insiders possess value-relevant private information not immediately incorporated into stock prices. Conversely, insider sales show weaker and less consistent predictive ability, suggesting that such transactions are often motivated by liquidity, diversification, or personal financial considerations rather than adverse information about firm value. The predictive effect is stronger for promoter trades and small-cap firms, consistent with higher levels of information asymmetry in these segments of the market. Overall, the results provide evidence that insider trading activity in India contains informational content and partially challenges the semi-strong form of market efficiency, offering important implications for investors, regulators, and corporate governance practices in emerging markets. The results are more pronounced for promoter trades and small-cap firms, highlighting the role of ownership concentration and information asymmetry in emerging markets. These findings have important implications for investors, regulators, and policymakers regarding market transparency, regulatory enforcement, and corporate governance practices in emerging capital markets. Employing an event study methodology and panel regression analysis, we test whether insider trades are followed by significant abnormal returns after controlling for firm size, book-to-market ratio, and market risk.
