Do Insiders Exploit Anomalies?

60 Pages Posted: 3 Jul 2015 Last revised: 21 Nov 2018

See all articles by Deniz Anginer

Deniz Anginer

World Bank Research

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Date Written: November 1, 2018

Abstract

Many studies document predictable stock returns known as anomalies. We investigate whether insiders exploit anomalies and the consequences of mandatory disclosure using a large backward-extended insider trading database from 1975 to 2014. Our results suggest that all 13 anomalies we consider are driven by mispricing, which is corrected shortly after insider trading becomes public, but only when the direction of insider trading agrees with the anomaly. Anomaly returns vanish when insider trading disagrees with the anomaly. We conclude that insiders exploit anomalies likely due to mispricing, and required disclosures improve price efficiency while offering sophisticated investors higher anomaly alphas.

Keywords: Anomalies, behavioral finance, asset pricing, factor models, market efficiency, insider trading

JEL Classification: G11, G12, G14, G17

Suggested Citation

Anginer, Deniz and Hoberg, Gerard and Seyhun, H. Nejat, Do Insiders Exploit Anomalies? (November 1, 2018). Marshall School of Business Working Paper No. 17-1. Available at SSRN: https://ssrn.com/abstract=2625614 or http://dx.doi.org/10.2139/ssrn.2625614

Deniz Anginer (Contact Author)

World Bank Research ( email )

1818 H Street, NW
Washington, DC 20433
United States

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

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