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The Persistence of Opportunistic Insider Trading

Financial Management, Forthcoming

Posted: 8 Apr 2017  

Brandon N. Cline

Mississippi State University

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

Date Written: October 7, 2016

Abstract

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

Suggested Citation

Cline, Brandon N. and Gokkaya, Sinan and Liu, Xi, The Persistence of Opportunistic Insider Trading (October 7, 2016). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2948387

Brandon N. Cline

Mississippi State University ( email )

Mississippi State, MS 39762
United States
662.325.7477 (Phone)
662.325.1977 (Fax)

Sinan Gokkaya (Contact Author)

Department of Finance, Ohio University ( email )

334 Copeland Hall
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

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