Informativeness of Insider Trades and Analyst Recommendations

75 Pages Posted: 21 Mar 2005 Last revised: 2 Jun 2019

See all articles by Jim Hsieh

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: May 30, 2019

Abstract

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

Hsieh, Jim and Ng, Lilian K. and Wang, Qinghai, Informativeness of Insider Trades and Analyst Recommendations (May 30, 2019). 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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