Does Insider Trading Law Enhance the Speed of Reduction in Analyst Forecast Errors?

47 Pages Posted: 17 Aug 2013 Last revised: 22 Feb 2021

See all articles by Pankaj K. Jain

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Evgeny Radetskiy

La Salle University

Udomsak Wongchoti

Massey University - School of Economics and Finance

Date Written: October 17, 2019

Abstract

We find that the speed with which analyst earnings forecast errors progressively decline with firm age is enhanced with the enforcement of insider trading laws in various financial markets around the globe. This phenomenon is robust in differences-in-differences and regression analyses, and is not explained away by improved information environments in recent years. In addition, we show that the propensity of stock price crashes around the global financial crisis reduces for those stocks with greater speed of reduction in forecast errors prior to the crash. Finally, enhanced speed is evident only in countries with strong regulatory infrastructures.

Keywords: Law Enforcement, Analyst Errors, Learning, Information Asymmetry

JEL Classification: G12, G14, G15

Suggested Citation

Jain, Pankaj K. and Radetskiy, Evgeny and Wongchoti, Udomsak, Does Insider Trading Law Enhance the Speed of Reduction in Analyst Forecast Errors? (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=2310970 or http://dx.doi.org/10.2139/ssrn.2310970

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Evgeny Radetskiy (Contact Author)

La Salle University ( email )

Philadelphia, PA 19141
United States

Udomsak Wongchoti

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

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