Investor Attention and Insider Trading

Abstract

We identify a new mechanism of opportunistic insider trading linked to attention-driven mispricing. Insiders are more likely to sell their company's stock during periods of heightened retail attention and more inclined to buy when attention diminishes. The results are particularly pronounced for lottery-type stocks and firms with substantial retail ownership. We demonstrate that our findings - which relate to indicators of mispricing, retail order imbalances, and Robinhood herding episodes - extend to seasoned equity issuances and cannot be solely explained by firm fundamentals. Attention-based insider trading is less likely to result in SEC enforcement actions and persists across different regulatory regimes.