The Persistence of Opportunistic Insider Trading
Financial Management, Forthcoming
Posted: 8 Apr 2017
Date Written: October 7, 2016
We document that corporate insiders’ trading behavior exhibits persistence over time. Classifying insiders as “Persistently Profitable (PP)” based on profits generated from historical trades, we find the current transactions of these insiders better predict firm performance. The relative abnormal performance is concentrated in management transactions and in firms with weaker governance and greater information asymmetry. PP insiders also better predict earnings surprises, major corporate news, and analyst revisions. Collectively, these results indicate PP insider transactions provide valid signals regarding future firm performance, and informational advantages over outside investors is a likely explanation for the profitability of PP trades.
Keywords: Insider Trading, Opportunistic Behavior, Performance Persistence
JEL Classification: G1, G2, G3, G14, G28
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