Is insider selling a bad sign?

In large, liquid companies, usually not: after officers and directors sold stocks trading over $100M a day, those stocks returned +16.5% over the next year against +15.3% for their index. In thinly traded companies, yes. After insider sales in stocks trading under $100k a day, the stock returned −11.8% on average against +10.8%, and in 2021-2025 −30.3% against +7.0%.

What does insider selling mean?

Most insider selling is compensation being turned into cash: executives are paid in stock and sell on schedules, often through 10b5-1 plans set up months ahead. That is why selling in large companies says little. A sale by the officers or directors of a small, thinly traded company is rarer, harder to explain by diversification, and in our data was followed by large declines.

Does insider buying work in small caps and microcaps?

Not in the thinnest stocks. Insider purchases in stocks trading under $100k a day returned +9.2% on average over the next year against +13.4% for a size-matched index, while purchases in stocks trading $10M to $100M a day returned +25.7% against +18.4%. The older academic finding that insider buying works best in small companies does not survive once you require that the stock can actually be bought.

Original researchUS / small caps2016 to 2025

The microcap trap: insider trades in thin stocks, where buying lagged and selling warned

Small companies are where insider buying is supposed to work best: fewer analysts, more for insiders to know. In ten years of Form 4 filings, the thinnest stocks were where it worked worst, where buying the dip was most often a falling knife, and where an insider sale was the clearest warning in the data. Five popular rules of thumb, tested at the end.

StockDrifts ResearchSeptember 29, 2026Filings through September 25, 2026The checklist Methodology

Insider buys, stocks under $100k a day

+9.2%

Index +13.4% · 24,566 purchases

Insider buys, $10-100M a day

+25.7%

Index +18.4% · 17,724 purchases

After insider sales, under $100k a day, 2021-25

−30.3%

Index +7.0% · typical −45.1%

Dip-buys in thin stocks 60%+ off the high

−32.4%

Typical 12-month result, excluding 2020

How to read this study

The trades. Open-market purchases and sales (Form 4 codes P and S) filed with the SEC from January 2016. One purchase decision counts once: lots filed together are merged, and a trade reported by several joint filers is counted once. The return. Measured from the closing price on the trading day after the Form 4 was filed, the first price a reader could act on, over the next 12 months, dividends included. A stock that delisted keeps its last traded price, so bankruptcies count as losses. The comparison. Each trade is set against a size-matched index over the same dates: the Russell 2000 (IWM) for companies under $2bn, the S&P 400 (MDY) for $2bn to $10bn, the S&P 500 (SPY) above that, sized on the filing date. Liquidity is the median daily dollar volume over the 20 trading days before the filing; thin means under $1M a day and the thinnest band under $100k. Sales are officer and director open-market sales (code S). Full definitions: methodology.

The reading in 30 seconds

Insider purchases in stocks trading under $100k a day returned +9.2% over the next year, against +13.4% for their index. Every more liquid band did better than its index, and stocks trading $10M to $100M a day did best: +25.7% against +18.4%.
In thin stocks, buying the dip was a falling knife: excluding 2020, insider purchases more than 60% below the 52-week high returned −4.8%, with a typical result of −32.4%. Insider purchases near the high did better than their index.
After officers and directors sold a stock trading under $100k a day in 2021-2025, it returned −30.3% over the next year while its index returned +7.0%. Funds filing as 10% owners, purchases over $5M and first-time buyers also trailed.

01 / Liquidity

Where insider buying looked most promising, it did worst

Academic studies from the 1990s and 2000s found that insider purchases predicted returns best in the smallest companies. Many of those companies could barely be traded: a few thousand dollars of stock changing hands a day. Sort the 110,617 purchases in this study by how much of the stock traded each day, and the thinnest band is the only one that trailed its index: +9.2% against +13.4%, with a typical result of +0.1%. Stocks trading $10M to $100M a day returned +25.7% against +18.4%.

Without 2020 the more liquid bands sit close to their index and the thinnest falls further behind: +2.1% against +8.5%. The practical rule is a floor on liquidity before an insider purchase is worth a look. In the thinnest stocks a purchase is often a board supporting a company that needs support, and the stock cannot be bought or sold in size without moving it.

Insider purchases in stocks trading under $100k a day returned +9.2% against +13.4%; in stocks trading $10-100M a day +25.7% against +18.4%. — **Twelve-month return after insider purchases, by liquidity.** Liquidity measured before the filing. Stocks under $1 at entry excluded.PNG SVG

Twelve-month return after insider purchases by liquidity, all years and excluding 2020
Traded a day	Purchases	Average return	Index	Excl. 2020: return	Excl. 2020: index
Under $100k a day	24,566	+9.2%	+13.4%	+2.1%	+8.5%
$100k to $1M	30,986	+18.0%	+15.0%	+10.5%	+7.9%
$1M to $10M	29,202	+19.0%	+16.0%	+8.8%	+8.5%
$10M to $100M	17,724	+25.7%	+18.4%	+7.3%	+9.6%
Over $100M a day	8,139	+22.2%	+17.6%	+14.7%	+13.0%

02 / Falling knives

Buying the dip in a thin stock was usually a falling knife

An insider buying after a stock has collapsed is the classic contrarian signal. It depended entirely on the stock. Excluding 2020, insider purchases in stocks trading under $1M a day that sat more than 60% below their 52-week high returned −4.8% over the next year against +7.5% for their index; the typical one lost 32%. Across all years, 34% of those purchases lost half their value within twelve months. In the same thin stocks, insider purchases within 10% of the high returned +12.5% against +7.2%: in small companies, insiders buying strength did better than insiders buying weakness.

In liquid stocks, deep-dip purchases roughly matched their index outside 2020 (+10.9% against +10.9%). In 2020 they were the best trades of the decade, because the whole market had fallen with them. A stock that falls alone usually falls for a reason.

In thin stocks more than 60% below their high, insider purchases returned −4.8% excluding 2020; within 10% of the high +12.5%. — **Distance from the 52-week high, thin and liquid stocks, excluding 2020.** Distance from the 52-week high on the filing date, using adjusted closes. Tick = size-matched index.PNG SVG

03 / Insider selling

In thin stocks, an insider sale was the clearest warning in the data

Selling by insiders in large companies told us almost nothing: stocks trading over $100M a day returned +16.5% in the year after insider sales, against +15.3% for their index. Small companies were the opposite. After officers and directors sold a stock trading under $100k a day, it returned −11.8% over the next year against +10.8% for its index, with a typical result of −19.2%. In 2021-2025 the average was −30.3% and the typical result −45.1%; in 2016-2020, a milder +5.4% against +14.3%.

The size of the sale did not change the message. In stocks trading under $1M a day, sales of less than 10% of the insider's holding were followed by +2.8% against +10.7%, and sales of more than half by +3.2% against +10.7%. For a shareholder in a small company, a Form 4 sale from its officers is a reason to re-read the last quarterly filing.

In 2021-2025, stocks trading under $100k a day returned −30.3% in the year after insider sales, against +7.0% for their index. — **Twelve-month return after insider sales, 2021-2025, by liquidity.** Officer and director open-market sales, one per insider, company and filing date.PNG SVG

Twelve-month return after insider sales, by liquidity and period
Traded a day	2016-20: return	2016-20: index	2021-25: return	2021-25: index	2021-25: sales
Under $100k a day	+5.4%	+14.3%	−30.3%	+7.0%	3,046
$100k to $1M	+15.8%	+13.9%	+1.0%	+7.0%	9,973
$1M to $10M	+19.8%	+14.7%	+3.3%	+5.0%	28,857
$10M to $100M	+21.0%	+15.4%	+3.2%	+7.0%	64,408
Over $100M a day	+25.2%	+18.5%	+9.4%	+12.6%	52,017

04 / Rules of thumb

Five rules, tested

"Follow the funds that own 10%." Did not pay. Purchases by holders filing only as 10% owners returned +11.6% against +14.2%. Many are private placements and financing rounds, bought at negotiated prices.

"The bigger the purchase, the stronger the signal." Did not pay. Purchases over $5M returned +10.0% against +13.0%; purchases under $250k beat their index. For CEOs, the share of the stake is the measure that works.

"Follow the CEO." Weaker than following the board. CEO purchases returned +16.5% against +15.0%, directors' purchases +19.1% against +15.5%.

"Follow insiders with a great record." Partly. We scored every insider with three or more purchases in 2016-2020 and followed their purchases from 2021. The top fifth returned +10.9% against +7.2%, but the bottom fifth also beat its index (+5.8% against +3.1%), and the top fifth's typical purchase returned −0.3%. The clearer split was experience: insiders with no purchases in 2016-2020 returned +4.6% against +7.9% on their later ones. A record mostly says an insider has bought before; it did not make the next purchase more likely to work.

"Plan purchases don't count." They behaved like any other. Purchases flagged as 10b5-1 plan trades returned +17.8% against +14.7%; discretionary purchases +17.5% against +15.5%.

Purchases from 2021 by insiders ranked on their 2016-2020 record
2016-2020 record	Later purchases	Average return	Index	Typical (median)
bottom fifth	4,049	+5.8%	+3.1%	+1.0%
second	5,629	+8.6%	+7.5%	+7.1%
middle	2,818	+6.8%	+5.6%	+3.3%
fourth	2,319	+4.6%	+6.3%	+1.8%
top fifth	5,653	+10.9%	+7.2%	−0.3%
no 2016-2020 purchases	32,216	+4.6%	+7.9%	−1.6%

05 / The checklist

Before following an insider into a small company

1. Check what trades. Under $100k a day, insider purchases trailed their index; set a floor before reading further.

2. Check the chart. In thin stocks, insiders buying 60% below the high was usually a falling knife. Insiders buying near the high did better.

3. Check who is buying. Directors and officers with a buying history, not funds filing as 10% owners or first-time buyers.

4. Check the market. Deep-dip purchases paid when the whole market had fallen, as in 2020. The insider buy/sell ratio shows when that is happening.

5. Respect the sale. If officers of a small company you own are selling, find out why before the next twelve months do. The full picture is in the ten-year study.

06 / Explore the evidence

Download the tables

Purchases by liquidity and drawdownReturn, index, median and counts per cell · CSV Sales by liquidityOfficer and director sales, 2016-2025 · CSV Every number on this pageExcluding-2020 tables, track records, 10b5-1 · JSON

07 / Questions

Questions this study answers

Is insider selling a bad sign?: In large, liquid companies, usually not: after officers and directors sold stocks trading over $100M a day, those stocks returned +16.5% over the next year against +15.3% for their index. In thinly traded companies, yes. After insider sales in stocks trading under $100k a day, the stock returned −11.8% on average against +10.8%, and in 2021-2025 −30.3% against +7.0%.
What does insider selling mean?: Most insider selling is compensation being turned into cash: executives are paid in stock and sell on schedules, often through 10b5-1 plans set up months ahead. That is why selling in large companies says little. Since April 2023, when Form 4 gained a 10b5-1 checkbox, plan sales returned +19.6% over the next year against +17.4% for their index, and discretionary sales +17.3% against +16.8%. A sale by the officers or directors of a small, thinly traded company is rarer and, in our data, was followed by large declines.
Should I buy a stock after insiders buy the dip?: Only if the stock trades. Excluding 2020, when every kind of dip-buy rebounded, insider purchases in stocks trading under $1M a day that sat more than 60% below their 52-week high returned −4.8% over the next year against +7.5% for their index, with a typical result of −32.4%. In stocks trading $10M or more a day, the same purchases roughly matched their index (+10.9% against +10.9%).
Does insider buying work in small caps and microcaps?: Not in the thinnest stocks. Insider purchases in stocks trading under $100k a day returned +9.2% on average over the next year against +13.4% for a size-matched index, while purchases in stocks trading $10M to $100M a day returned +25.7% against +18.4%. The older academic finding that insider buying works best in small companies does not survive once you require that the stock can actually be bought.

This study describes past trades and what their stocks did afterwards. It is not a recommendation to buy or sell any security. Averages over thousands of trades say nothing certain about the next one, and the trades named here are examples, not picks.