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We provide evidence that insider trading contains value-relevant information by examining the association of insider trading with subsequent earnings changes and analysts' forecast revisions. Using a sample of 93,036 observations for 2,181 firms during 1986-1991, we document significant associations between insider trading and short (one-year-ahead) and longer term (two-and three-years-ahead) earnings changes, and between insider trading and analysts' forecast revisions, showing that insider trading contains value-relevant information. Our results also suggest that when insider trading is in the direction of the unexpected earnings news (i.e., insider purchases following good earnings news and sales following bad news), insiders may be acting on value-relevant private information. When insider trading is in a direction contrary to the earnings news, these trades appear to be motivated by the insiders' recognition of the market mispricing of their securities.
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