Corporate insiders’ exploitation of investors’ anchoring bias at the 52-week high and low

Abstract

We find that insiders adopt dissimulation strategies to conceal their informational advantage and trade profitably when their firms’ stock prices reach 52-week highs and lows, exploiting the anchoring biases of uninformed investors. Insiders’ trading profitability depends on their firms’ future stock returns, operating efficiency, and investment sentiment, but not on earnings surprises. We document that male board members and insiders with long investment horizons are more likely to use dissimulation strategies. Overall, we provide evidence that insiders benefit from these price extremes, despite their status as publicly available, irrelevant, historical price levels that normally should not predict future stock returns.