Sell-Side Analyst Heterogeneity and Insider Trading

43 Pages Posted: 24 Sep 2019

See all articles by Harold Contreras

Harold Contreras

Faculty of Economics and Business - University of Chile

Francisco Marcet

University of Chile- School of Economics and Business

Date Written: September 15, 2019

Abstract

This study explores insider trading patterns after earnings announcements under different surprises. We show that insiders sell more aggressively depending on the heterogeneity of analysts whose EPS forecasts are met or beaten in order to camouflage their trades. Specifically, insiders sell more shares of their companies' stocks and sooner after the publications of earnings when top analysts forecasts are met or beaten. Consistent with the informed trading literature, insiders strategically select these moments because stock price impact is low and legal scrutiny of their trades is minimal. In line with the camouflage incentives, by selling after top analysts' forecasts are met or beaten stock prices become less efficient as they adjust slowly to insider trades. Finally, we show that the incentives of insiders to hide their trades is mainly concentrated on members of the top management team who are more likely to bear the costs of selling shares after positive news.

Keywords: Insider trading, Analysts' forecasts, Earnings announcements

JEL Classification: G14, G19, G39

Suggested Citation

Contreras, Harold and Marcet, Francisco, Sell-Side Analyst Heterogeneity and Insider Trading (September 15, 2019). Available at SSRN: https://ssrn.com/abstract=3454167 or http://dx.doi.org/10.2139/ssrn.3454167

Harold Contreras

Faculty of Economics and Business - University of Chile ( email )

Universidad de Chile
Diagonal Paraguay 257
Santiago
Chile

Francisco Marcet (Contact Author)

University of Chile- School of Economics and Business ( email )

Diagonal Paraguay 257
Floor 1003
Santiago, R. Metropolitana 7520421
Chile
+56-229783567 (Phone)

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