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A Comparison of the Information Content of Insider Trading and Management Earnings Forecasts

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  • Penman, Stephen H.

Abstract

In this paper, insider trading is viewed as a signal of managements' assessments of firms' future prospects and its information content is compared to that in managements' earnings forecasts. These forecasts are explicit statements of managements' assessments of future prospects. A number of measures of insider trading designed to capture the information aspect of trading are investigated. The results indicate that the insider trading measures do not capture the information conveyed in earnings forecasts, although there is evidence that insider trading measures that take into account the timing of trades relative to the date of the release of the forecast are informative.

Suggested Citation

  • Penman, Stephen H., 1985. "A Comparison of the Information Content of Insider Trading and Management Earnings Forecasts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(01), pages 1-17, March.
  • Handle: RePEc:cup:jfinqa:v:20:y:1985:i:01:p:1-17_01
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    Cited by:

    1. Ching, Ken M.L. & Firth, Michael & Rui, Oliver M., 2006. "The information content of insider trading around seasoned equity offerings," Pacific-Basin Finance Journal, Elsevier, vol. 14(1), pages 91-117, January.
    2. Del Brio, Esther B. & Miguel, Alberto & Perote, Javier, 2002. "An investigation of insider trading profits in the Spanish stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 73-94.
    3. Laurel Franzen & Xu Li & Oktay Urcan & Mark E. Vargus, 2014. "The Market Response To Insider Sales Of Restricted Stock Versus Unrestricted Stock," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(1), pages 99-118, February.
    4. Esther Brio & Javier Perote, 2007. "What Enhances Insider Trading Profitability?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(2), pages 173-188, June.
    5. Agrawal, Anup & Cooper, Tommy, 2015. "Insider trading before accounting scandals," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 169-190.
    6. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.

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