Informativeness of Insider Trades and Analyst Recommendations
75 Pages Posted: 21 Mar 2005 Last revised: 2 Jun 2019
Date Written: May 30, 2019
This study evaluates the relative 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 downgraded by analysts and sell more shares when it is upgraded. This result is robust to various controls, especially insiders' contrarian trading tendency and analysts' preference for price momentum. We further investigate the intertemporal interactions between insiders and financial analysts and find that analyst recommendation revisions significantly affect subsequent insider trading decisions, but not vice versa. Moreover, our return analysis shows that insider trading is more informative in revealing positive information whereas analyst recommendation revisions are more informative in conveying negative information. Overall, our findings suggest that the information contents of insider trading and analyst recommendations complement, rather than substitute, each other in the financial market.
Keywords: insider trading; analyst recommendations; information; return predictability
JEL Classification: G11; G14; G29
Suggested Citation: Suggested Citation