The dual purpose of insider trading: Signaling quality and battling shorts

Yongming Chen and Hui Li

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: This paper contributes to explaining the benefit-cost puzzle of insider trading activity. We show that net insider purchase is a convex function of the quarterly earnings surprise decile in terms of mean, median, and purchase frequency. The convexity suggests that the magnitude of net insider purchases is positively associated with information asymmetry. Further evidence indicates that the majority of insider purchases are not designed to earn abnormal returns; instead, they signal firm quality when firms are in adverse situations and fight against short sellers when short interest is high.

Keywords: Insider trading; Signaling; Earnings surprise; Voluntary disclosure; Short selling (search for similar items in EconPapers)
JEL-codes: G14 G41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612323003835
Full text for ScienceDirect subscribers only

Related works:
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:eee:finlet:v:55:y:2023:i:pb:s1544612323003835

DOI: 10.1016/j.frl.2023.104011

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().