The Persistence of Opportunistic Insider Trading. Issue 4 (1st June 2017)

• Record Type: Journal Article
• Authors: Cline, Brandon N.; Gokkaya, Sinan; Liu, Xi
• Is Part Of: Financial management. Volume 46:Issue 4(2017:Winter)
• Page Start: 919
• Page End: 964
• Publication Date: 2017-06-01
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12177
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: We study the drivers of persistent insider trading profitability by examining the trades of insiders whose past trades have been profitable. We find that the current transactions of these persistently profitable (PP) insiders better predict firm performance than those of other insiders. The relative abnormal performance is more pronounced for trades of insiders who are managers rather than large shareholders or unaffiliated insiders and for trades in firms with weaker governance and greater information asymmetry. The trades of PP insiders also better predict earnings surprises, major corporate news, and analyst revisions. Collectively, these results indicate that PP insider transactions provide valid signals regarding future firm performance and that persistence in profitability is driven by informational advantages.