Director discretion and insider trading profitability

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

Research output: Contribution to journalArticle

2 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 languageEnglish
Pages (from-to)28-43
Number of pages16
JournalPacific-Basin finance journal
Volume39
DOIs
Publication statusPublished - Sep 2016
Externally publishedYes

Keywords

  • Insider trading
  • Director discretion

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