Trades by Insiders and the Informativeness of Earnings Announcements

43 Pages Posted: 15 Apr 2020 Last revised: 10 Feb 2021

See all articles by Julio A. Crego

Julio A. Crego

Tilburg University

Jasmin Gider

Tilburg University - Tilburg University School of Economics and Management

Date Written: September 7, 2020

Abstract

Do insiders trade on private information about earnings news? We address this question by exploiting the discontinuity in the term structure of options around earnings announcements, to obtain a daily, forward-looking measure of the informativeness of the next earnings announcement. This measure reveals two trading motives: purchases decrease the informativeness, suggesting that insiders trade on the earnings realization. Sales increase the informativeness, indicating that insiders use information about the variance. The positive relation is more pronounced for officers and directors and absent in signals by analysts or activist shareholders, who possess private information but are better diversified.

Keywords: Insider Trading, Informed Trading, Public Information, Earnings Announcements

JEL Classification: G14, G30, M41

Suggested Citation

Crego, Julio and Gider, Jasmin, Trades by Insiders and the Informativeness of Earnings Announcements (September 7, 2020). Available at SSRN: https://ssrn.com/abstract=3561462 or http://dx.doi.org/10.2139/ssrn.3561462

Julio Crego

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Jasmin Gider (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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