Corporate policies restricting trading by insiders

This paper examines policies and procedures put in place by corporations to regulate trading in the stock by the firm's own insiders. Over 92% of our sample companies have their own policies restricting trading by insiders, a nd 78% have explicit blackout periods during which the company prohibits tr ading by its insiders. Our data indicate that blackout periods successfully suppress trading, both purchases and sales, by insiders, and that the blac kout period is associated with a bid-ask spread that's narrower by about tw o basis points. Consistent with this effect on the spread, allowed insider trades are modestly more profitable than insider trades made during prohibi ted blackout periods. (C) 2000 Elsevier Science S.A. All rights reserved. J EL classification: G14; G18; C38; K22; L22.