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Strategic timing of corporate insiders when trading at earnings announcements

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  • Contreras, Harold

Abstract

This paper provides new evidence that insiders exploit their stock’s mispricing after earnings announcements rather than their foreknowledge of future cash flows to make profitable trades. Insiders buy and sell more intensively shortly after the publication of earnings (from day 0 to +5) in response to market reaction to earnings announcement, and the explanatory power is higher relative to book-to-market and long-term past returns. Also, in line with insiders trading on mispricing, insiders’ purchases and sales are profitable both after positive and negative earnings surprises, which indicates that their trading strategies are superior to simple contrarian or momentum strategies.

Suggested Citation

  • Contreras, Harold, 2020. "Strategic timing of corporate insiders when trading at earnings announcements," Finance Research Letters, Elsevier, vol. 34(C).
    • Handle: RePEc:eee:finlet:v:34:y:2020:i:c:s1544612319301278
    DOI: 10.1016/j.frl.2019.07.015
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Wanlong & Zhang, Wei & Xiong, Xiong & Zou, Gaofeng, 2021. "How insiders utilize their information advantages in their trading: Evidence from China," Finance Research Letters, Elsevier, vol. 42(C).
    2. Mazza, Paolo & Wang, Shiyu, 2021. "Corporate legal insider trading in China: Performance and determinants," International Review of Law and Economics, Elsevier, vol. 68(C).
    3. Contreras, Harold & Marcet, Francisco, 2021. "Sell-side analyst heterogeneity and insider trading," Journal of Corporate Finance, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Insider trading; Contrarian trading; Earnings announcements; Mispricing;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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