How Informative are Analyst Recommendations and Insider Trades?

46 Pages Posted: 21 Mar 2005  

Jim Hsieh

George Mason University

Lilian K. Ng

York University - Schulich School of Business

Qinghai Wang

University of Central Florida - College of Business Administration

Date Written: April 12, 2005

Abstract

This study jointly evaluates the informativeness of insider trades and analyst recommendations. We show that the two activities often generate contradictory signals. Insiders in aggregate buy more shares when their firm's stock is unfavorably recommended or downgraded by analysts than when it is favorably recommended or upgraded. This result is robust to various controls such as varying degrees of analyst coverage, firm size, book-to-market ratios, and stock price momentum. We find that analyst recommendations affect insider trading decisions, but not vice versa. Our further analysis shows that insider trading is informative when signaling positive information, and analyst recommendations are informative when conveying negative information. The overall results imply that corporate insiders and financial analysts do not substitute each other's informational role in the financial market.

Keywords: Analyst recommendations, Insider trades

JEL Classification: G14

Suggested Citation

Hsieh, Jim and Ng, Lilian K. and Wang, Qinghai, How Informative are Analyst Recommendations and Insider Trades? (April 12, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=687584 or http://dx.doi.org/10.2139/ssrn.687584

Jim Hsieh

George Mason University ( email )

4400 University Dr, MSN 5F5
George Mason University
Fairfax, VA 22030
United States

Lilian K. Ng (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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