To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements

Adriana Korczak, Piotr Korczak and Meziane Lasfer

Journal of Business Finance & Accounting, 2010, vol. 37, issue 3‐4, 369-407

Abstract: Abstract: We argue that insiders' decisions to trade in short windows before news announcements are likely to result from a trade‐off between the incentives to capitalize on the foreknowledge of the disclosure and the risk of regulatory scrutiny and reputation loss. We provide evidence that the decision of insiders to buy is driven by this trade‐off. We show that insiders strategically choose the amount of shares bought ahead of good news announcements, as they increase their purchases when the price impact of the news goes up, but the amount of shares purchased levels off as the news becomes extreme. In contrast, their sell trades are primarily influenced by the deterring effect of the regulatory and reputation risks, as the probability of their sell trades decreases significantly with the price impact of the forthcoming bad news. To further support our arguments on the importance of incentives and disincentives to trade, we show that the strategic trading is mainly observed in the most price‐sensitive groups of news announcements, and is clearly pronounced for best informed executives (CEOs), and that the trading patterns change with changes in regulations, and insiders with higher reputational risk limit their trading ahead of bad news.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://doi.org/10.1111/j.1468-5957.2010.02185.x

Related works:
Working Paper: To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:37:y:2010:i:3-4:p:369-407

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().