|Publication||Corporate insider trading and higher moments of stock returns|
University of Hamburg, University of Mannheim, Research Center SAFE
Corporate Finance, Asset Pricing
Insider trading, skewness, volatility
We examine whether corporate insider trades predict higher moments of stock return distributions. Using data on U.S. corporate insider trades for the period from 1986 to 2013, the evidence suggests that return skewness can be predicted by taking into account the trading activity of corporate insiders. Insider purchases are followed by an increase and insider sales by a decrease in stock return skewness. Our results conrm earlier evidence that insider purchases are followed by a decrease, and insider sales by an increase in stock return volatility. The magnitude of the relation between insider trading and stock return volatility as well as skewness is amplified if corporate insiders engage in relatively larger trades. Finally, for insider purchases both relations are more pronounced for firms with increases in information asymmetry, as proxied by research and development spending.
FMA Europe 2017 (Lisbon)