Insider trading, future earnings, and post-earnings announcement drift

IF 3.3 3区管理学 Q1 BUSINESS, FINANCE

Journal of Accounting and Public Policy Pub Date : 2023-07-01 DOI:10.1016/j.jaccpubpol.2023.107117

Lyungmae Choi , Lucile Faurel , Stephen A. Hillegeist

{"title":"Insider trading, future earnings, and post-earnings announcement drift","authors":"Lyungmae Choi , Lucile Faurel , Stephen A. Hillegeist","doi":"10.1016/j.jaccpubpol.2023.107117","DOIUrl":null,"url":null,"abstract":"<div><p>This paper examines the association between insider trading prior to quarterly earnings announcements and the magnitude of the post-earnings announcement drift (PEAD). We conjecture and find that insider trades reflect insiders’ private information about the persistence of earnings news. Thus, insider trades can help investors better understand and incorporate the time-series properties of quarterly earnings into stock prices in a timely and unbiased manner, thereby mitigating PEAD. As predicted, PEAD is significantly lower when earnings announcements are preceded by insider trading. The reduction in PEAD is driven by contradictory insider trades (i.e., net buys before large negative earnings news or net sells before large positive earnings news) and is more pronounced in the presence of more sophisticated market participants. Consistent with investors extracting and trading on insiders’ private information, pre-announcement insider trading is associated with smaller market reactions to future earnings news in each of the four subsequent quarters. Overall, our findings indicate insider trading contributes to stock price efficiency by conveying insiders’ private information about future earnings and especially the persistence of earnings news.</p></div>","PeriodicalId":48070,"journal":{"name":"Journal of Accounting and Public Policy","volume":null,"pages":null},"PeriodicalIF":3.3000,"publicationDate":"2023-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Accounting and Public Policy","FirstCategoryId":"91","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0278425423000662","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}

引用次数: 0

Abstract

This paper examines the association between insider trading prior to quarterly earnings announcements and the magnitude of the post-earnings announcement drift (PEAD). We conjecture and find that insider trades reflect insiders’ private information about the persistence of earnings news. Thus, insider trades can help investors better understand and incorporate the time-series properties of quarterly earnings into stock prices in a timely and unbiased manner, thereby mitigating PEAD. As predicted, PEAD is significantly lower when earnings announcements are preceded by insider trading. The reduction in PEAD is driven by contradictory insider trades (i.e., net buys before large negative earnings news or net sells before large positive earnings news) and is more pronounced in the presence of more sophisticated market participants. Consistent with investors extracting and trading on insiders’ private information, pre-announcement insider trading is associated with smaller market reactions to future earnings news in each of the four subsequent quarters. Overall, our findings indicate insider trading contributes to stock price efficiency by conveying insiders’ private information about future earnings and especially the persistence of earnings news.

查看原文本刊更多论文

内幕交易、未来收益和收益后公告都在漂移

本文研究了季度盈利公告前的内幕交易与盈利公告后漂移幅度之间的关系。我们推测并发现，内幕交易反映了内部人士关于盈利消息持续性的私人信息。因此，内幕交易可以帮助投资者更好地理解季度收益的时间序列特性，并及时、公正地将其纳入股价，从而缓解PEAD。正如预测的那样，当盈利公告之前有内幕交易时，PEAD会显著降低。PEAD的减少是由相互矛盾的内幕交易驱动的（即，在大的负收益消息之前的净买入或在大的正收益新闻之前的净卖出），在更复杂的市场参与者面前更为明显。与投资者提取和交易内部人士的私人信息一致，在随后的四个季度中，公告前的内幕交易与市场对未来盈利消息的反应较小有关。总体而言，我们的研究结果表明，内幕交易通过传递内部人士关于未来收益的私人信息，特别是收益消息的持续性，有助于提高股价效率。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

求助全文

约1分钟内获得全文求助全文

来源期刊

Journal of Accounting and Public Policy Multiple-

CiteScore

4.80

自引率

2.80%

发文量

期刊介绍： The Journal of Accounting and Public Policy publishes research papers focusing on the intersection between accounting and public policy. Preference is given to papers illuminating through theoretical or empirical analysis, the effects of accounting on public policy and vice-versa. Subjects treated in this journal include the interface of accounting with economics, political science, sociology, or law. The Journal includes a section entitled Accounting Letters. This section publishes short research articles that should not exceed approximately 3,000 words. The objective of this section is to facilitate the rapid dissemination of important accounting research. Accordingly, articles submitted to this section will be reviewed within fours weeks of receipt, revisions will be limited to one, and publication will occur within four months of acceptance.