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Publication Corporate insider trading and higher moments of stock returns

Type

Working Paper

Institution(s)

University of Hamburg, University of Mannheim, Research Center SAFE

Year

2017

Author(s)

Wolfgang Drobetz

Emil Mussbach

Christian Westheide

Research Area

Corporate Finance, Asset Pricing

Keywords

Insider trading, skewness, volatility

Abstract

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 con rm 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 amplifi ed if corporate insiders engage in relatively larger trades. Finally, for insider purchases both relations are more pronounced for fi rms with increases in information asymmetry, as proxied by research and development spending.

Presentations

FMA Europe 2017 (Lisbon)

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