What Motivates CEO and CFO Trading – Contrarian Beliefs or Superior Information?

Abu Chowdhury, Sabur Mollah (s.mollah@sheffield.ac.uk) and Mir Zaman
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Mir Zaman: College of Business Administration, University of Northern Iowa

No 2018-10, Working Papers from Swansea University, School of Management

Abstract: This paper examines whether trading by CEOs and CFOs is motivated by contrarian beliefs or superior information about future cash flow realizations. Although both CEOs and CFOs earn significant abnormal returns following their trades, we find that CFO trades are associated with higher abnormal returns than CEO trades. Initial analysis suggests that these abnormal returns are related to both contrarian beliefs and superior information about future cash flow realizations. However, when we analyze the trading behavior in terms of routine trading and opportunistic trading, we find that both CEOs and CFOs earn abnormal returns from opportunistic trading and these trades are motivated solely by contrarian beliefs. Our results have important implications for insider trading in the US.

Keywords: Insider trading; CEO; CFO; Contrarian beliefs; Superior information; Opportunistic and routine trading. (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2018-02-24
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Persistent link: https://EconPapers.repec.org/RePEc:swn:wpaper:2018-10

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