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What Motivates CEO and CFO Trading – Contrarian Beliefs or Superior Information?

Author

Listed:
  • Abu Chowdhury

    (Stockholm Business School, Stockholm University)

  • Sabur Mollah

    (School of Management, Swansea University)

  • Mir A. Zaman

    (College of Business Administration, University of Northern Iowa)

Abstract

This paper examines whether trading by CEOs and CFOs is motivated by contrarian beliefs or superior information about future cash flow realizations. Although both CEOs and CFOs earn significant abnormal returns following their trades, we find that CFO trades are associated with higher abnormal returns than CEO trades. Initial analysis suggests that these abnormal returns are related to both contrarian beliefs and superior information about future cash flow realizations. However, when we analyze the trading behavior in terms of routine trading and opportunistic trading, we find that both CEOs and CFOs earn abnormal returns from opportunistic trading and these trades are motivated solely by contrarian beliefs. Our results have important implications for insider trading in the US.

Suggested Citation

  • Abu Chowdhury & Sabur Mollah & Mir A. Zaman, 2018. "What Motivates CEO and CFO Trading – Contrarian Beliefs or Superior Information?," Working Papers 2018-10, Swansea University, School of Management.
    • Handle: RePEc:swn:wpaper:2018-10
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    File URL: https://rahwebdav.swan.ac.uk/repec/pdf/WP2018-10.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Insider trading; CEO; CFO; Contrarian beliefs; Superior information; Opportunistic and routine trading.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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