Volatility and Insider Sales before Earnings Announcement

37 Pages Posted: 24 Jan 2021 Last revised: 30 Jan 2021

See all articles by Yue Hu

Yue Hu

Hong Kong Polytechnic University

Date Written: October 21, 2020

Abstract

I propose to use volatility to infer opportunistic insider sales. I argue that insider sales occurring when volatility is low are suspicious and that these suspicious sales are likely to be driven by insiders’ private information for the following reasons. Suppose that insider sales are not driven by their private information. Insiders are expected to behave in the same way as uninformed investors. If uninformed investors sell stocks based on information, they shall acquire information from the market when the price is volatile; if uninformed investors speculate in the market, high volatility offers more opportunities to speculate. I test the argument with insider sales before quarterly earnings announcements in the China A-share market from 2008 to 2018. I find that insider sales that occur when volatility is low are more likely to be followed by ROE decline. This finding suggests that insider sales occurring when volatility is low are more likely to be associated with un-announced negative news. In sum, this paper offers a simple new method that screens out suspicious insider sales for regulators.

Keywords: Insider sales, opportunism, volatility, future performance

JEL Classification: G14 M41 M48

Suggested Citation

Hu, Yue, Volatility and Insider Sales before Earnings Announcement (October 21, 2020). Available at SSRN: https://ssrn.com/abstract=3715961 or http://dx.doi.org/10.2139/ssrn.3715961

Yue Hu (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
24
Abstract Views
217
PlumX Metrics