Information Trading by Corporate Insiders Based on Accounting Accruals: Forecasting Economic Performance

24 Pages Posted: 17 Nov 2006

See all articles by Bart van Praag

Bart van Praag

University of Amsterdam - Business School

Allan Hodgson

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Abstract

In this paper, we test whether directors' (corporate insiders) trading in Australia, based on accounting accruals, provides incremental information in forecasting a firm's economic performance. We determine that directors' trading on negative accruals in larger firms has greater forecasting content and is associated with 1-year-ahead bull market phases. Moreover, arbitrage portfolios set up to mimic insider trading can earn 1-year-ahead excess size-adjusted arbitrage returns of up to 12.2 per cent. Results are consistent with directors hiding their trades in liquid well-traded firms and in providing incremental information above that supplied by a continuous information regime.

Suggested Citation

van Praag, Bart J. and Hodgson, Allan C., Information Trading by Corporate Insiders Based on Accounting Accruals: Forecasting Economic Performance. Accounting and Finance, Vol. 46, No. 5, pp. 819-842, December 2006, Available at SSRN: https://ssrn.com/abstract=945486 or http://dx.doi.org/10.1111/j.1467-629X.2006.00206.x

Bart J. Van Praag

University of Amsterdam - Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Allan C. Hodgson (Contact Author)

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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