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It is generally supposed that corporate insiders have access to information superior to that of outsiders. Empirical work on insider trading by Jaffe (1974) and Finnerty (1976a, 1976b) has found that insiders do earn higher returns on their shareholdings than outsiders, on average. Further, insiders in different managerial positions appear to earn differential abnormal returns (Baesel and Stein 1979).1 Investors subscribe to services which summarize insider trading activity2 and act on the information released in the SEC's Official Summary of Insider Trading (Jaffe 1974). This evidence suggests that insiders do indeed have superior information and use that information in trading in their firms' securities. This paper investigates more directly the link between observed insider information and insider trading and also the link between insider trading and information-dissemination activities. The tests reported here examine the security trading of corporate insiders around the time they make public announcements about their
Stephen H. Penman (1982) studied this question.