Director discretion and insider trading profitability

Sean Foley; Amy Kwan; Thomas H McInish; Richard  Philip

doi:10.1016/j.pacfin.2016.05.005

Director discretion and insider trading profitability

Sean Foley, Amy Kwan, Thomas H McInish, Richard Philip

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

Abstract

Using a machine-learning algorithm, we classify over 60,000 director transactions into discretionary and non-discretionary purchases and sales based on the trading motive provided by the insider. We find that discretionary trades by company insiders are more informed than non-discretionary trades. Further, discretionary purchases generate higher abnormal returns (1) for larger purchases, or when the purchase is for (2) the stock of a smaller firm, or (3) a firm with greater information asymmetry.

Original language	English
Pages (from-to)	28-43
Number of pages	16
Journal	Pacific-Basin Finance Journal
Volume	39
DOIs	https://doi.org/10.1016/j.pacfin.2016.05.005
Publication status	Published - Sept 2016
Externally published	Yes

Keywords

Insider trading
Director discretion

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10.1016/j.pacfin.2016.05.005

Cite this

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title = "Director discretion and insider trading profitability",

abstract = "Using a machine-learning algorithm, we classify over 60,000 director transactions into discretionary and non-discretionary purchases and sales based on the trading motive provided by the insider. We find that discretionary trades by company insiders are more informed than non-discretionary trades. Further, discretionary purchases generate higher abnormal returns (1) for larger purchases, or when the purchase is for (2) the stock of a smaller firm, or (3) a firm with greater information asymmetry.",

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AB - Using a machine-learning algorithm, we classify over 60,000 director transactions into discretionary and non-discretionary purchases and sales based on the trading motive provided by the insider. We find that discretionary trades by company insiders are more informed than non-discretionary trades. Further, discretionary purchases generate higher abnormal returns (1) for larger purchases, or when the purchase is for (2) the stock of a smaller firm, or (3) a firm with greater information asymmetry.

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KW - Director discretion

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DO - 10.1016/j.pacfin.2016.05.005

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JO - Pacific-Basin Finance Journal

JF - Pacific-Basin Finance Journal

ER -

Director discretion and insider trading profitability

Abstract

Keywords

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