OVERREACTION AND INSIDER TRADING - EVIDENCE FROM GROWTH AND VALUE PORTFOLIOS

Insider transactions are not random across growth and value stocks. We find that insider buying climbs as stocks change from growth to value categories. Insider buying also is greater after low stock returns, a nd lower after high stock returns. These findings are consistent with a version of overreaction which says that prices of value stocks tend to lie below fundamental values, and prices of growth stocks tend to l ie above fundamental values.