When is Insider Trading Informative
Queensland University of Technology - School of Economics and Finance; Financial Research Network (FIRN)
Australian National University (ANU) - College of Business and Economics; Financial Research Network (FIRN)
24th Australasian Finance and Banking Conference 2011 Paper
Insider trades have been shown to earn abnormal returns. However, the information content of these trades is less certain. Based on the simple idea that insiders respond to benefits and costs in informative trading, this paper explores the relationship between insider trading informativeness and the information and regulation environments. We show that insider trades are more informative when firms are less transparent, and this correlation increases in the post-SOX period when reportings become timelier. Insider purchases are also more informative when SEC enforcement receives higher media attention. The correlation between informativeness and transparency, which is primarily driven by opportunistic trades, is manifested in long-term insider gains even after controlling for size and book-to-market. By asking \When is insider trading informative?", we provide an affirmative answer to the question \Is insider trading informative?"
Number of Pages in PDF File: 37
Keywords: insider trade, information asymmetry, cumulative abnormal return
JEL Classification: G3working papers series
Date posted: August 26, 2011 ; Last revised: March 16, 2012
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