Retail Investor Attention and Insider Trading

We identify a new mechanism of opportunistic insider trading that is associated with attention-driven mispricing. Insiders are more likely to sell their company’s stock after increases in retail attention, and they are more likely to buy after attention decreases. A long-short insider-trading portfolio conditioned on attention generates 65.8% higher abnormal returns than that of an unconditional portfolio. The results are stronger for lottery stocks and for firms with higher retail ownership or weaker governance. The attention-based trading is unrelated to firm fundamentals, is less likely to trigger SEC enforcement actions, and becomes more prevalent following waves of SEC enforcement