Does Insider Trading Law Enhance the Speed of Reduction in Analyst Forecast Errors?
47 Pages Posted: 17 Aug 2013 Last revised: 22 Feb 2021
Date Written: October 17, 2019
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: Suggested Citation