Research

Insider Trading and Analyst Forecast Revisions: Global Evidence

We examine how insider trading affects market responses to subsequent analyst forecast revisions in a global setting. We find stronger market responses to analyst forecast revisions subsequent to the insider trading than to other revisions. This stronger response is mainly driven by analyst forecast revisions that are in the same direction as the previous insider trading signal. In further analyses, we find that the market responses are stronger to analyst forecast revisions that follow insider sales for the US data, but stronger to revisions that follow insider purchases for the international data. Overall, our study suggests that investors view analyst forecast revisions as having different information content conditional on the existence and direction of previous insider trading signals and that investors seem to respond to both the analyst signal and the previous insider signal at the time analysts revise their forecasts, although the prior insider trading signal have been publicly known

Are Directors' Dealings Informative? Evidence from European Stock Markets

In this paper, we investigate whether directors' dealings reports are informative for outside investors. We analyze short-term announcement effects for eight European countries, namely Austria, France, Germany, Ireland, Italy, the Netherlands, Sweden, and the U.K, between 01/2003 and 06/2009. We find significant announcement effects in four out of eight countries after directors' dealings reports have been disclosed. Moreover, we conclude that for most countries the magnitude of the announcement effect depends on transaction size, firm size, book to market ratio, and multiple trades by different insiders on the same trading day. The results are stronger for purchases than for sales. For Ireland and Sweden we find tentative evidence that the corporate position of an insider is connected to the size of the announcement effect. Moreover, we find that abnormal returns after directors' dealings announcements are most pronounced in the healthcare, IT, and energy sectors.

Identifying Profitable Insider Transactions

This study examines long-term excess returns subsequent to directors' dealings announcements between January 2002 and December 2009 from 17 Western European countries. Excess returns are adjusted with equally weighted portfolios which are size and sector neutral. Our main findings show that long-term positive (negative) excess returns exist after insider purchase (sell) transactions. Moreover, we introduce a simple technique to detect the most informative directors' dealings where each transaction is categorized as a "low", "medium" or "high conviction" trade. Based on this categorization, out-of-sample "high conviction" insider purchases generate an average 12-month excess return of 20.94%, while "medium conviction" purchases generate 1.32% and "low conviction" purchases generate -3.40%


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