What Do Insiders Know? Evidence from Insider Trading Around Share Repurchases and SEOs

48 Pages Posted: 16 Feb 2016 Last revised: 13 Mar 2019

See all articles by Peter Cziraki

Peter Cziraki

University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC)

Evgeny Lyandres

Boston University

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Date Written: November 16, 2018

Abstract

We examine the nature of information contained in insider trades prior to corporate events. Insiders’ net buying increases before open market share repurchase announcements and decreases before SEOs. Higher insider net buying is associated with better post-event operating performance, a reduction in undervaluation, and, for repurchases, lower post-event cost of capital. Insider trading predicts announcement returns and, for repurchases, the long-term drift following events. Overall, our results suggest that insider trades before corporate events contain information about changes both in fundamentals and in investor sentiment. Information about fundamentals is incorporated slowly into prices, while information about mispricing is incorporated faster.

Keywords: Insider Trading, Repurchases, Seasoned Equity Offers, Market Efficiency

JEL Classification: G14, G30, G32, G35

Suggested Citation

Cziraki, Peter and Lyandres, Evgeny and Michaely, Roni, What Do Insiders Know? Evidence from Insider Trading Around Share Repurchases and SEOs (November 16, 2018). 27th Annual Conference on Financial Economics and Accounting Paper; Swiss Finance Institute Research Paper No. 19-11. Available at SSRN: https://ssrn.com/abstract=2732969 or http://dx.doi.org/10.2139/ssrn.2732969

Peter Cziraki (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada
+1 416 946 3298 (Phone)

HOME PAGE: http://www.economics.utoronto.ca/petercziraki

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Evgeny Lyandres

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-3582279 (Phone)

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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