The Information Dynamics of Insider Intent: How Reporting Inversions (Form 144) Mask Informational Rents in Insider Sales (Form 4)

TL;DR

This paper uncovers how SEC reporting inversions create informational frictions in insider trading disclosures, leading to market inefficiencies, and proposes a mandatory confirmation to improve transparency and market efficiency.

Contribution

It identifies a significant informational friction in SEC Form 144 disclosures, quantifies its impact, and proposes a policy solution to enhance transparency and efficiency.

Findings

52.4% opacity rate in insider signals

Significant alpha concentrated in large-cap firms

Proposed mandatory execution confirmation (Form 144-A)

Abstract

This study identifies and quantifies a significant informational friction embedded in the SEC Form 144 disclosure regime, characterized as predictive decoupling. Drawing on a theoretical foundation of welfare economics, the article argues that the current reporting inversion -- where trade execution (Form 4) frequently precedes the public notice of intent (Form 144) -- violates the conditions for Pareto efficiency by inducing non-symmetric pricing. Utilizing an event-study framework of intent-to-sell windows, the analysis examines cases where insiders file a notice of proposed sale but fail to execute within the statutory 90-day period. The machine learning audit reveals a persistent 52.4 percent opacity rate, where aborted signals remain statistically indistinguishable from routine executions, creating a structural information ceiling that prevents the market from exhausting the signal's informational content. Contrary to the traditional small-firm effect, the study documents a large-cap significance paradox: while small-cap portfolios yield higher absolute abnormal returns (32.21 bps), statistically significant alpha is concentrated in large-cap firms (14.49 bps, $p = 0.021$). The results suggest that Institutional Salience enables more reliable processing of this negative non-event when reputational costs are maximized. Cross-sectional tests confirm that prior idiosyncratic volatility serves as a signal amplifier, with causal estimators identifying an illiquidity jump of up to 2.63 times. To mitigate this market failure, the study proposes a mandatory execution confirmation (Form 144-A) to transition the regime toward bilateral accountability, converting a predictive blind spot into a verifiable data stream and restoring the informational symmetry requisite for efficient capital allocation.