Testing Form 4 Insider Purchases with a Filing-Date Event Study

Summary

This study tests whether public filings reporting C-suite purchases of common shares are followed by abnormal stock returns. It builds a research sample from SEC Form 4 data, carefully distinguishing transaction rows, aggregated purchase components, and issuer-level signals on filing dates. The method excludes amendments, joint-owner filings, transactions affirmatively marked as Rule 10b5-1 plan trades, and records failing price and data-quality checks. It compares post-filing returns with SPY and reports short-horizon positive average cumulative abnormal returns; longer-horizon estimates are less conclusive.

The article emphasizes that transaction code P does not establish an exchange trade, that a filing can include multiple owners and transactions, and that structured data have limitations. The study is observational, with incomplete amendment resolution, uncertain owner attribution for joint filings, and possible corporate-action and price-data errors. Its findings do not measure causal effects, costs, portfolio returns, or strategy capacity, and the author treats fitted market-model estimates as sensitivity analysis rather than the main result.

Key ideas

• Form 4 transaction code P includes open-market or private purchases, so it cannot establish where a transaction occurred.
• Aggregating transaction components and then issuer filing-day signals helps align the data with the economic and statistical observations.
• Joint filings are excluded because flattened SEC transaction records do not reliably link each transaction to a specific owner.
• The study finds positive SPY-adjusted abnormal returns over short horizons, while longer-horizon evidence is inconclusive.
• Observed post-filing returns are associations and do not establish causation or a deployable strategy.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.