Insider buying — when a company’s own executives or directors purchase its stock — has historically shown modest predictive power, especially cluster buys by multiple insiders. Because insiders know their business well, open-market purchases can signal confidence. The effect is real but noisy, and it is one input among many, not a standalone buy signal.
Academic studies going back decades find that stocks bought by insiders have, on average, modestly outperformed afterward — the signal is strongest when several insiders buy around the same time (a cluster) and when the buyer is a senior executive using their own money.
The effect is a tilt, not a certainty. Insiders buy for many reasons and are often early; a purchase can precede further declines. Insider selling is far less informative, since insiders sell for diversification, taxes and liquidity, not just because they expect weakness.
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