Uncertain times and the insider perspective

This paper examines insiders' informational privilege by studying the nexus between aggregated self-reported insider trades and Economic Policy Uncertainty (EPU). We demonstrate that firm insiders act in response to the first signs of uncertainty as it appears in the media, and high-ranked managers, such as CEOs and CFOs, react more promptly than other insiders. Our findings further support the idea that insiders' indirect informational advantages allow them to interpret the significance of public information for cash flows more accurately in their own companies. Our study is the first to examine insiders' behavior using pure public information; it is also the first to exclude the influence of private information completely. We also consider various measures of EPU, including global and categorical indices representing economic, political uncertainty, while taking the financial crisis period into account.