Trades by Insiders and the Informativeness of Earnings Announcements

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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: March 26, 2020

Abstract

Investors learn from trades by insiders about the next earnings announcement. By exploiting the discontinuity in the term structure of option prices on the announcement date, we show that this learning is nontrivial: the trades carry information about both the first and second moments of earnings. On the one hand, buys decrease earnings informativeness, on the other hand, sales increase it. Conversely, signals by analysts and 13D filers, who are also informed, unequivocally decrease earnings informativeness. The difference between insiders and other informed agents resides on their natural underdiversification, which incentivizes them to trade on the second moment.

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 (March 26, 2020). Available at SSRN: https://ssrn.com/abstract=

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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