Trading Against the Grain: When Insiders Buy High and Sell Low

Forthcoming in the Journal of Portfolio Management

57 Pages Posted: 7 Sep 2019 Last revised: 16 Mar 2022

See all articles by Ruihai Li

Ruihai Li

Shanghai Lixin University of Commerce

Xuewu Wesley Wang

Quinnipiac University

Zhipeng Yan

New Jersey Institute of Technology

Qunzi Zhang

Shandong University

Date Written: September 1, 2019

Abstract

Both behavioral biases and informational advantages can drive insider trades. We first document that U.S. corporate insiders anchor on the 52-week low (high) for stock purchases (sales). We then find that insider trades made when the stock price is far away from its anchor levels are more informative, suggesting that when insiders trade against the anchoring bias, private information is providing the catalyst to overcome the bias. We further show outside investors can reap sizeable abnormal returns by piggybacking on insiders who make these “buy high and sell low” trades.

Keywords: Insider trade; anchoring bias, 52-week high and 52-week low, private information

JEL Classification: G11, G14, G15

Suggested Citation

Li, Ruihai and Wang, Xuewu Wesley and Yan, Zhipeng and Zhang, Qunzi, Trading Against the Grain: When Insiders Buy High and Sell Low (September 1, 2019). Forthcoming in the Journal of Portfolio Management, Available at SSRN: https://ssrn.com/abstract=3446396 or http://dx.doi.org/10.2139/ssrn.3446396

Ruihai Li

Shanghai Lixin University of Commerce ( email )

2800 Wenxiang Road
Shanghai
China

Xuewu Wesley Wang

Quinnipiac University ( email )

275 Mt Carmel Ave
Hamden, CT 06518
United States
2035827404 (Phone)

Zhipeng Yan (Contact Author)

New Jersey Institute of Technology ( email )

United States

Qunzi Zhang

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, SD Shandong 250100
China

HOME PAGE: http://www.econ.sdu.edu.cn/info/1257/42629.htm

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