When is Insider Trading Informative

37 Pages Posted: 26 Aug 2011 Last revised: 16 Mar 2012

See all articles by Yanhui Wu

Yanhui Wu

Queensland University of Technology - School of Economics and Finance; Financial Research Network (FIRN)

Qiaoqiao Zhu

Australian National University (ANU) - College of Business and Economics; Financial Research Network (FIRN)

Date Written: November 2011

Abstract

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 benefi ts 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?"

Keywords: insider trade, information asymmetry, cumulative abnormal return

JEL Classification: G3

Suggested Citation

Wu, Yanhui and Zhu, Qiaoqiao, When is Insider Trading Informative (November 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1917132 or http://dx.doi.org/10.2139/ssrn.1917132

Yanhui Wu (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Qiaoqiao Zhu

Australian National University (ANU) - College of Business and Economics ( email )

Canberra, Australian Capital Territory 2601
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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