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Insider Trading as a Signal of Private Information

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Author Info
Damodaran, Aswath
Liu, Crocker H
Abstract

There is substantial evidence that insider trading is present around corporate announcements and that this insider trading is motivated by private information. Using real estate investment trusts that choose to reappraise themselves as our sample, we establish that the appraisals contain information, but find no market response to the public announcement of this information in these appraisals. We consider two possible explanations for this inconsistency: the first that the appraisal information is not highlighted in earnings reports and hence remains unobserved; and the second that insiders trade on the appraisal information in the time that elapses between the appraisal and its public announcement. We find strong support for the second hypothesis, with insiders buying (selling) after they receive favorable (unfavorable) appraisal news, especially for negative appraisals. We also find that positive (negative) appraisals and net insider buying (selling) elicit significant positive (negative) abnormal returns during the appraisal period. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 6 (1993)
Issue (Month): 1 ()
Pages: 79-119
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:oup:rfinst:v:6:y:1993:i:1:p:79-119

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  1. Medrano, Luis Angel & Vives, Xavier, 2002. "Regulating Insider Trading when Investment Matters," CEPR Discussion Papers 3292, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Deqing Diane Li & Kenneth Yung, 2004. "Short Interests in Real Estate Investment Trusts," International Real Estate Review, Asian Real Estate Society, vol. 7(1), pages 56-70. [Downloadable!]
  3. David M. Geltner & Richard A. Graff & Michael S. Young, 1994. "Random Disaggregate Appraisal Error in Commercial Property: Evidence from the Russell-NCREIF Database," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 403-420. [Downloadable!]
  4. Kevin Chiang, 2009. "Discovering REIT Price Discovery: A New Data Setting," The Journal of Real Estate Finance and Economics, Springer, vol. 39(1), pages 74-91, July. [Downloadable!] (restricted)
  5. John B. Corgel, 1997. "Property-by-Property Valuation of Publicly Traded Real Estate Firms," Journal of Real Estate Research, American Real Estate Society, vol. 14(1), pages 77-90. [Downloadable!]
  6. YiLin Wu & Lee Cheng-Few, 2008. "Specification analysis of corporate equity financing decision: a conditional residual approach," Review of Quantitative Finance and Accounting, Springer, vol. 31(4), pages 395-423, November. [Downloadable!] (restricted)
  7. James Payne & George Waters, 2007. "Have Equity REITs Experienced Periodically Collapsing Bubbles?," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 207-224, February. [Downloadable!] (restricted)
  8. H. Swint Friday & G. Stacy Sirmans & C. Mitchell Conover, 1999. "Ownership Structure and the Value of the Firm: The Case of REITs," Journal of Real Estate Research, American Real Estate Society, vol. 17(1), pages 71-90. [Downloadable!]
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