This paper shows that equity-based aggregate insider trading predicts future changes in US corporate credit spreads. Results suggest that the closer insiders are involved in daily business activities, the greater the predictive power of those insiders’ transactions is. In line with the literature, we reason and find that closely involved insiders are better at gauging future changes in cash flow realizations eventually affecting a firm’s default risk, because these insiders have greater access to in-firm information. The predictive power of aggregate insider trading doubles each time we increase the forecast horizon and each time when gradually increasing the level of default risk from BBB to CCC spreads. For the standard BBB–AAA spread, a univariate model explains up to 52% in annual credit spread change variation and is economically meaningful. An increase in one standard deviation in aggregate insider trading translates into a decrease of up to 72% of the standard deviation of annual credit spread changes. The predictive power of aggregate insider trading is neither just driven by the 2007/08 financial crisis, nor only by information conveyed from net purchasing or net selling insiders. Our results recommend portfolio and risk managers to take aggregate inside information and the heterogeneity among insiders into account when assessing future aggregate default risk.

中文翻译：

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聚合内幕交易与企业信用利差变化预测

本文表明，基于股票的内幕交易总量可预测美国企业信用利差的未来变化。结果表明，内部人参与日常业务活动越密切，这些内部人交易的预测能力就越大。与文献一致，我们推理并发现密切参与的内部人员更善于衡量现金流实现的未来变化，最终影响公司的违约风险，因为这些内部人员有更多的机会获得公司内部信息。每次我们增加预测范围以及每次将违约风险水平从 BBB 逐渐增加到 CCC 利差时，聚合内幕交易的预测能力都会加倍。对于标准的 BBB-AAA 利差，单变量模型可以解释高达 52% 的年度信用利差变化变化，并且具有经济意义。内幕交易总量增加一个标准差，意味着年度信用利差变化的标准差最多可减少 72%。总体内幕交易的预测能力不仅受 2007/08 年金融危机的驱动，也不仅仅受净买入或净卖出内部人士传达的信息的驱动。我们的结果建议投资组合和风险管理人员在评估未来的总体违约风险时考虑总体内幕信息和内部人员之间的异质性。也不仅仅是通过净购买或净销售内部人士传达的信息。我们的结果建议投资组合和风险管理人员在评估未来的总体违约风险时考虑总体内幕信息和内部人员之间的异质性。也不仅仅是通过净购买或净销售内部人士传达的信息。我们的结果建议投资组合和风险管理人员在评估未来的总体违约风险时考虑总体内幕信息和内部人员之间的异质性。