The SEC’s history of Google insider trading is eye-opening stuff, particularly when it was revealed that 12% of California’s tax receipt growth came from the sale of Google shares by insiders. A recent Digg story raised the question of whether the insiders know something about the future of the stock price (e.g., it will drop once click fraud is acknowledged as a major problem) that outsiders don’t. I don’t believe there’s a risk. I just finished reading this paper, which looked at the correlation between insider trading and stock price and found that:
Stock sales by insiders increase three to nine quarters prior
to a break in a string of consecutive increases in quarterly earnings. Insider stock sales are
greater for growth firms, before a longer period of declining earnings, and when the
earnings decline the break is greater. Consistent with avoiding an established legal
jeopardy, there is little abnormal selling in the two quarters immediately prior to the
break.