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Insider Trading: Strategic Informati...

Ma, Yun.

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Insider Trading: Strategic Information Disclosure and Implications on Stock Returns.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Insider Trading: Strategic Information Disclosure and Implications on Stock Returns./
Author:	Ma, Yun.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2023,
Description:	143 p.
Notes:	Source: Dissertations Abstracts International, Volume: 85-01, Section: A.
Contained By:	Dissertations Abstracts International85-01A.
Subject:	Finance. -
Online resource:	https://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=30314440
ISBN:	9798379905095

Insider Trading: Strategic Information Disclosure and Implications on Stock Returns.
Ma, Yun.

Insider Trading: Strategic Information Disclosure and Implications on Stock Returns. - Ann Arbor : ProQuest Dissertations & Theses, 2023 - 143 p.

Source: Dissertations Abstracts International, Volume: 85-01, Section: A.

Thesis (Ph.D.)--Washington State University, 2023.

This item must not be sold to any third party vendors.

Corporate executives are prohibited from trading on material nonpublic information. In 2000, the SEC enacted Rule 10b5-1, which allows insiders to preplan their transactions before being aware of material nonpublic information. However, do corporate executives subsequently influence the timing and content of information disclosure to benefit their preplanned trades? We examine cumulative abnormal returns (CARs) around insider transactions and document patterns suggesting that insiders are "perfect" timers. That is, stock prices go up (go down) prior to but drop (back up) after insider sells (buys). Further classifying insider trades into preplanned (routine) trades and non-preplanned (opportunistic) trades, we show that the stock return patterns hold not only for non-preplanned (opportunistic) trades but also for preplanned (routine) trades. Using 8-K filings as a proxy of corporate discretionary disclosure, we find that there are significantly more 8-K filings prior to insider trades than during normal times. Moreover, based on the sentiment score from RavenPack News Analytics, we find that analyst reports and corporate news releases both have significant explanatory power of stock returns around insider transactions. The evidence documented in our study cannot rule out the hypothesis that corporate executives influence the timing and content of information disclosure to benefit their preplanned trades. In the second part of my dissertation, we investigate in insider trading's implications on stock returns. The literature posits that insiders are contrarian, i.e., buy stocks when they are under-valued and sell stocks when they are over-valued. In addition, insider transactions contain information about future firm fundamentals. As such, insider trading helps improve stock price efficiency and promote stock price discovery. In this study, we test the implications of both hypotheses. First, we follow the literature and identify undervalued and overvalued stocks and examine whether insider trades help correct mispricing of these stocks. Second, we examine whether insider trades contain more information about future firm fundamentals for mispriced stocks and the extent to which insider trades incorporate future fundamental information into stock prices. Our findings indicate that insider transactions play a role in correcting mispricing. However, the effect is significant mainly for overvalued stocks over short-term and undervalued stocks over long-term. In addition, we find that insider transactions contain information about long-term future firm fundamentals mainly for overvalued stocks. Nevertheless, our analysis suggests that insider transactions only incorporate a small fraction of future firm fundamental information into stock prices. To sharpen our analysis, we exclude pre-scheduled or routine insider trades, which are believed to be less informed of stock valuation and replicate our empirical tests, and show that our main findings are consistent.

ISBN: 9798379905095Subjects--Topical Terms:

542899
Finance.
Subjects--Index Terms:

Asset pricing

Insider Trading: Strategic Information Disclosure and Implications on Stock Returns.
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245 1 0 $a Insider Trading: Strategic Information Disclosure and Implications on Stock Returns.
260 1 $a Ann Arbor : $b ProQuest Dissertations & Theses, $c 2023
300 $a 143 p.
500 $a Source: Dissertations Abstracts International, Volume: 85-01, Section: A.
500 $a Advisor: Jiang, George J.
502 $a Thesis (Ph.D.)--Washington State University, 2023.
506 $a This item must not be sold to any third party vendors.
520 $a Corporate executives are prohibited from trading on material nonpublic information. In 2000, the SEC enacted Rule 10b5-1, which allows insiders to preplan their transactions before being aware of material nonpublic information. However, do corporate executives subsequently influence the timing and content of information disclosure to benefit their preplanned trades? We examine cumulative abnormal returns (CARs) around insider transactions and document patterns suggesting that insiders are "perfect" timers. That is, stock prices go up (go down) prior to but drop (back up) after insider sells (buys). Further classifying insider trades into preplanned (routine) trades and non-preplanned (opportunistic) trades, we show that the stock return patterns hold not only for non-preplanned (opportunistic) trades but also for preplanned (routine) trades. Using 8-K filings as a proxy of corporate discretionary disclosure, we find that there are significantly more 8-K filings prior to insider trades than during normal times. Moreover, based on the sentiment score from RavenPack News Analytics, we find that analyst reports and corporate news releases both have significant explanatory power of stock returns around insider transactions. The evidence documented in our study cannot rule out the hypothesis that corporate executives influence the timing and content of information disclosure to benefit their preplanned trades. In the second part of my dissertation, we investigate in insider trading's implications on stock returns. The literature posits that insiders are contrarian, i.e., buy stocks when they are under-valued and sell stocks when they are over-valued. In addition, insider transactions contain information about future firm fundamentals. As such, insider trading helps improve stock price efficiency and promote stock price discovery. In this study, we test the implications of both hypotheses. First, we follow the literature and identify undervalued and overvalued stocks and examine whether insider trades help correct mispricing of these stocks. Second, we examine whether insider trades contain more information about future firm fundamentals for mispriced stocks and the extent to which insider trades incorporate future fundamental information into stock prices. Our findings indicate that insider transactions play a role in correcting mispricing. However, the effect is significant mainly for overvalued stocks over short-term and undervalued stocks over long-term. In addition, we find that insider transactions contain information about long-term future firm fundamentals mainly for overvalued stocks. Nevertheless, our analysis suggests that insider transactions only incorporate a small fraction of future firm fundamental information into stock prices. To sharpen our analysis, we exclude pre-scheduled or routine insider trades, which are believed to be less informed of stock valuation and replicate our empirical tests, and show that our main findings are consistent.
590 $a School code: 0251.
650 4 $a Finance. $3 542899
653 $a Asset pricing
653 $a Information dsclosure
653 $a Insider trading
653 $a Stock returns
690 $a 0508
690 $a 0501
710 2 $a Washington State University. $b Carson College of Business. $3 3680655
773 0 $t Dissertations Abstracts International $g 85-01A.
790 $a 0251
791 $a Ph.D.
792 $a 2023
793 $a English
856 4 0 $u https://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=30314440