Research firm hunts for clues in insider sales

[Joanne98]

By Martha Graybow

NEW YORK (Reuters) - Investors often scrutinize insider stock sales for what they suggest about a company's prospects. Now researchers say there's evidence that corporations could be in for trouble when top executives cash out quickly.

Gradient Analytics, an independent research firm that looks closely at executive compensation, says it has come up with a model that pinpoints instances in which corporate insiders exercise large caches of options "abnormally early."

The findings are significant for investors because they show a strong link between early exercise decisions and a subsequent deterioration of the company's profits and share price, according to Gradient founder Carr Bettis, who has previously taught finance at Arizona State University.

The research is based on a working paper Bettis wrote with two other academic experts examining more than 60,000 option exercises by corporate chief executives, chairmen, presidents and chief operating officers at 3,437 companies from 1996 to 2004.

The study says executives appear to use private information of future earnings underperformance to time option exercises. It found that the negative performance typically showed up six months after the early option exercise.

http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyID=2007-01-27T060403Z_01_N24275339_RTRIDST_0_BUSINESSPRO-COLUMN-LIFTING-DC.XML

This looks like a great way to time selling your stocks.

[Jackpine Radical]

1. Like the Donald said, "at the top

it's ALL insider trading." When you come right down to it, the whole market depends on incomplete access to information on the part of small investors.

[Joanne98]

2. Ain't that the truth.

[Jackpine Radical]

3. No foolin'. I'm struck by the fact that even this "discovery--"

(a discovery in the No Shit Sherlock category) is of use only to those willing & able to search out or pay for the specific information on individual companies. I can know all I want about the general finding, but unless I have exact knowledge of the behavior of given individuals, the knowledge of the general principle is useless to me.

[salin]

4. Not surprising - but I hope that such awareness of the widespread

prevalence of thisinsider trading leads to prosecutions for such behavior. Not that I would hold my breath waiting for that to happen.