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The Association between Insider Trading and Information Announcements

Author

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  • John Elliott
  • Dale Morse
  • Gordon Richardson

Abstract

Prior knowledge of certain public information events can lead to abnormal returns on securities. Insiders generally have access to information before the public. Several studies have shown that abnormal returns are earned by portfolios which are constructed on the basis of the trading behavior of corporate insiders. We test whether this demonstrably profitable trading is associated with the public release of information about earnings, dividends, bond ratings, mergers, and bankruptcies. The results are weakly consistent with some use of private information, but most insider trading appears to be unrelated to these information events.

Suggested Citation

  • John Elliott & Dale Morse & Gordon Richardson, 1984. "The Association between Insider Trading and Information Announcements," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 521-536, Winter.
  • Handle: RePEc:rje:randje:v:15:y:1984:i:winter:p:521-536
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    Citations

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    Cited by:

    1. Chuang-Yuang Lin & Chih-Wei Liu & Ming Way Li, 2009. "Trading Behaviors of Insiders: A Speculative Trading Model and Empirical Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(5), pages 62-71, September.
    2. repec:eee:jfinec:v:126:y:2017:i:3:p:490-515 is not listed on IDEAS
    3. Kraft, Anastasia & Lee, Bong Soo & Lopatta, Kerstin, 2014. "Management earnings forecasts, insider trading, and information asymmetry," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 96-123.
    4. Lont, David & Griffin, Paul & McClune, Kate, 2011. "Insightful Insiders? Insider Trading and Stock Return Around Debt Covenant Violation Disclosures," Working Paper Series 4088, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    5. Dutordoir, Marie & Li, Hui & Liu, Frank Hong & Verwijmeren, Patrick, 2016. "Convertible bond announcement effects: Why is Japan different?," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 76-92.
    6. repec:eee:advacc:v:29:y:2013:i:1:p:12-26 is not listed on IDEAS
    7. Frankel, Richard & Li, Xu, 2004. "Characteristics of a firm's information environment and the information asymmetry between insiders and outsiders," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 229-259, June.
    8. Gider, Jasmin & Westheide, Christian, 2016. "Relative idiosyncratic volatility and the timing of corporate insider trading," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 312-334.
    9. Julan Du & Shang-Jin Wei, 2004. "Does Insider Trading Raise Market Volatility?," Economic Journal, Royal Economic Society, vol. 114(498), pages 916-942, October.
    10. Chuang-Yuang Lin & Chih-Wei Liu & Ming Way Li, 2009. "Trading Behaviors of Insiders: A Speculative Trading Model and Empirical Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(5), pages 62-71, September.
    11. Qin Wang & Hsiao-Fen Yang, 2015. "Earnings announcements, trading volume, and price discovery: evidence from dual class firms," Review of Quantitative Finance and Accounting, Springer, vol. 44(4), pages 669-700, May.
    12. Agrawal, Anup & Jaffe, Jeffrey F., 1995. "Does Section 16b deter insider trading by target managers?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 295-319.
    13. Park, Jinwoo & Lee, Posang & Park, Yun W., 2014. "Information effect of involuntary delisting and informed trading," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 251-269.
    14. Jonathan A. Milian, 2016. "Insider sales based on short-term earnings information," Review of Quantitative Finance and Accounting, Springer, vol. 47(1), pages 109-128, July.
    15. Lazarczyk, Ewa, 2015. "Private and Public Information on the Nordic Intra-Day Electricity Market," Working Paper Series 1064, Research Institute of Industrial Economics.

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