Profits to opportunistic insider trading before and after the Dodd-Frank act of 2010

Purpose: The authors examine if opportunistic insider trading profits decrease after the enactment of the Dodd-Frank Act (DFA) in 2010. The DFA expands legal prohibitions on insider trading in the USA. Design/methodology/approach: The authors identify opportunistic insider trades following a method that is outlined in Cohen et al. (2012). The authors examine univariate statistics and perform multivariate regression tests to examine opportunistic trading profits before and after the DFA. Similar multivariate regression tests have been used widely in the literature to examine the profitability of insider trades. Findings: The authors find that opportunistic insider purchases were highly profitable before the DFA. Profits after opportunistic purchases were significantly lower after the DFA. Opportunistic insider sales were contrarian trades both before and after the DFA. However, share prices kept increasing after insiders sold their shares. Originality/value: To the best of the authors’ knowledge, the paper is the first study that compares the profitability of opportunistic insider trades, as identified by Cohen et al., before and after the DFA. The study contributes to the literature that finds that insiders change their strategic trading behavior when the potential costs of the illegal trading increase due to regulatory action.