Sell-Side Analyst Heterogeneity and Insider Trading
43 Pages Posted: 24 Sep 2019
Date Written: September 15, 2019
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: Suggested Citation