Insider trading is usually framed around CEOs, board members, and officially designated insiders. These are the people regulators monitor closely. Their trades must be disclosed. Their transactions are scrutinized by investors, journalists, and compliance departments. But modern corporations contain many other employees with access to valuable information. This paper studies whether these “below-the-top” executives trade profitably on material non-public information.
Flying below the radar: Insider trading by executives below the top
- Hans K. Hvide , Kasper Meisner Nielsen
- Journal of Financial Economics, 2026
- A version of this paper can be found here
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Key Academic Insights
Executives below the top earn abnormal returns on own-company trades
The paper shows that executives below the top generate economically large abnormal returns when purchasing their employer’s stock. Depending on the methodology, abnormal returns reach roughly 68 to 101 basis points over one month and approximately 250 basis points over six months.
The abnormal returns do not appear in unrelated stocks
The same individuals fail to outperform when trading stocks unrelated to their employer. In fact, non-inside purchases generate negative abnormal returns. This strongly suggests the results are driven by informational advantages rather than general investing skill.
Industry expertise does not explain the results
Executives also fail to outperform when trading other firms in the same industry. Same-industry trades generally produce negative abnormal returns. This rules out the idea that sector knowledge alone explains the profits.
Top executives perform worse than below-the-top executives
Interestingly, top executives generate smaller and often statistically insignificant abnormal returns. The paper suggests that higher visibility and regulatory scrutiny may discourage top executives from exploiting informational advantages as aggressively.
Employees also appear to benefit from inside information
The study extends beyond executives and finds positive abnormal returns among non-executive employees as well. Abnormal returns appear across the wage distribution, although higher-paid employees trade more frequently.
The abnormal returns persist over time
The profits from inside purchases continue to accumulate over several months. This pattern suggests executives are not merely reacting faster to public information, but may instead possess valuable information that markets incorporate gradually.
Trading through family members or LLCs does not appear important
The researchers examine whether executives hide trades through family accounts or privately owned companies. They find little evidence of abnormal returns from these indirect channels, suggesting most informed trading occurs through personal brokerage accounts.
Practical Applications for Investment Advisors
Recognize that insider activity may extend beyond reported filings
Public insider filings may capture only part of the informational trading occurring inside corporations. Important information may diffuse well below the CEO and board level.
Avoid overinterpreting executive purchases in isolation
Not all insider-related activity comes from the executives investors typically monitor. Significant informational advantages may exist among operational managers and senior employees who are invisible in traditional disclosure systems.
Understand the limits of market efficiency
The persistence of abnormal returns over multi-month horizons suggests that markets may incorporate firm-specific information more slowly than many investors assume.
Separate informational advantages from investment skill
The paper demonstrates the importance of distinguishing between genuine stock-picking ability and informational advantages tied to organizational proximity.
How to Explain This to Clients
“This paper examines whether executives below the top level of management trade on material non-public information. Using comprehensive Norwegian administrative data covering all stock trades from 1997 to 2014, the authors analyze the abnormal returns earned by executives purchasing their employer’s stock. They find economically large and statistically significant abnormal returns on inside purchases, while the same individuals do not outperform in unrelated stocks or same-industry stocks. The evidence suggests that insider trading activity extends beyond officially designated insiders and may occur broadly among executives and employees operating below traditional disclosure thresholds.”
The Most Important Chart from the Paper
This Figure. reports the average return to trading by executives below the top. We report the average buy-and-hold return following inside buys, inside sells, non-inside buys, and non-inside sells over horizons from 1 week to 6 months.
The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index.
Abstract
To enforce insider trading laws, financial regulators require top executives to make their own-company trades public. One implication of this regulatory focus is that executives below the top fly under the radar. We use administrative register data from Norway to examine whether executives below the top in listed companies earn abnormal returns on purchases in own-company stock. We find evidence of abnormal returns on such trades, about 50 to 100 basis points at the 1-month horizon. The abnormal returns on purchases in other stocks are negative, making high investor ability an unlikely explanation.
About the Author: Elisabetta Basilico, PhD, CFA
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Important Disclosures
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.
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