Executive Gender and Prospect-Value Bias: Evidence from Insider Trading

Abstract

This study shows that prospect value influences insider-trading decisions, and the impact is stronger among female executives’ trades. Insiders who buy (sell) when their company's prospect value is above (below) other firms’ prospect values lose 34 (12) basis points over the next month. Female insider trades, as compared with trades by their male counterparts, are affected more by prospect-value bias, and they suffer significantly higher resultant losses. While the findings contradict the overconfidence hypothesis that predicts poor trading decisions by male insiders, the results are consistent with the male insiders’ superior information access hypothesis, suggesting that behavioral biases diminish with knowledge.