DEFINITION of 'Signaling Approach'

The idea that insiders have information not available to the market. Moves made by insiders can signal information to outsiders and change the stock price.

BREAKING DOWN 'Signaling Approach'

The thinking goes that if a high level executive, such as a CEO, is selling, he or she is probably doing so for a reason that you, as the public, don't know yet, so you should get out also. The same is true for the opposite. If an insider is buying stocks in his or her company, it signals outsiders to also buy based on the idea that the insider knows more than he or she is letting on to the public.

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RELATED FAQS
  1. What exactly is insider trading?

    An "insider" is any person who possesses at least one of the following: 1) access to valuable non-public information about ... Read Answer >>
  2. What's the difference between insider trading and insider information?

    Learn about insider information and insider trading and the differences between the two; both involve nonpublic information ... Read Answer >>
  3. Can you accidentally engage in insider trading?

    Learn why it's possible to commit insider trading by accident, and why insider trading laws create logical inconsistencies ... Read Answer >>
  4. How often should I measure my company's key performance metrics (KPIs)?

    Learn the definition of illegal insider trading while reviewing the people who can be involved and the regulations and consequences ... Read Answer >>
  5. If I write a blog post about stocks I own, is that considered insider trading?

    Learn about whether writing a blog post about a stock you own is insider trading. Cracking down on inside trading is an important ... Read Answer >>
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    Insiders often are blessed with owning a significant portion of a company's shares. This shared ownership is often in the ... Read Answer >>
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