The investigation of relationship between insider trading activities and stock returns of German blue chips

The aim of this paper is to investigate the causality between stock returns and insider open market transactions. The Dumitrescu-Hurlin (2012) heterogeneous approach to Granger causality is chosen to examine the relationship. The investigation was conducted on 30 most traded German blue chips during the period 2006-2014. The strong causality is revealed in the short term period. Thus, stock returns may be used to predict future insider activity. The strong causality between stock returns and future insider buying and selling transactions is further confirmed with three out of four employed insider trading indices. The reverse relationship is weak and valid only for longer time horizon of twelve months.