Patterns of Insider Trading: It Is Not All Black and White

2020 ◽  
pp. 0148558X2096363
Author(s):  
Mehrzad Azmi Shabestari ◽  
Min Cao ◽  
Bharat Sarath
Keyword(s):  
Information Asymmetry ◽  
Insider Trading ◽  
The United States ◽  
Regular Pattern ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Black And White ◽  
Predictable Pattern ◽  
The Difference ◽  
High Information

The regular pattern of quarterly earnings announcements sets up a predictable pattern of information asymmetry in the market. Both regulatory restrictions and voluntary corporate restrictions direct trading to low information asymmetry periods. To understand the effect of these restrictions, this study examines insider trading in three different windows: white windows (3–12 trading days after the earnings announcement, periods with low information asymmetry), black windows (all the other days in the quarter, periods with higher information asymmetry), and the blackest windows (the last 10 trading days of the black window, periods with the highest information asymmetry). First, our results show that a large proportion of insider trading in the United States takes place in the black window. Second, we document that trading in the white period exhibits a strong self-selection bias. We also show that the excess returns earned by black period trades vanish if postponed to the next white period following the earnings announcement. Finally, we show that a relatively large proportion of pre-specified trading under SEC-sponsored 10b5-1 plans are filed for black window periods, but the difference across black and white window plans is a matter of frequency of trade rather than the magnitude of profits. Overall, these results suggest that insiders balance the risk and profitability of their trading in white and black windows and that insider trading restriction in high-information asymmetry periods is not effective in practice.

Do Algorithmic Traders Improve Liquidity When Information Asymmetry is High?

2020 ◽  
pp. 2050015
Author(s):  
Archana Jain ◽  
Chinmay Jain ◽  
Revansiddha Basavaraj Khanapure
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Natural Experiment ◽  
Equity Markets ◽  
Algorithmic Trading ◽  
Unanswered Question ◽  
Earnings Announcement ◽  
Liquidity Provision ◽  
High Information

Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) show that algorithmic traders improve liquidity in equity markets. An equally important and unanswered question is whether they improve liquidity when information asymmetry is high. We use days surrounding earnings announcement as a period of high information asymmetry. First, we follow Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) to use introduction of NYSE autoquote as a natural experiment. We find that increased algorithmic trading (AT) as a result of NYSE autoquote does not improve liquidity around earnings announcements. Next, we use trade-to-order volume % and cancel rate as a proxy for algorithmic trading and find that abnormal spreads surrounding the days of earnings announcement are significantly higher for stocks with higher AT. Our findings indicate that algorithmic traders reduces their role of liquidity provision in markets when information asymmetry is high. These findings shed further light on the role of liquidity provision by algorithmic traders in the financial markets.

scholarly journals Does earnings surprise determine the timing of the earnings announcement? Evidence from earnings announcements of Indian companies

2020 ◽  
Vol 5 (1) ◽  
pp. 119-134
Author(s):  
Krishna Prasad ◽  
Nandan Prabhu
Keyword(s):  
Earnings Announcements ◽  
Earnings Announcement ◽  
Content Type ◽  
Quarterly Earnings ◽  
Earnings Surprise ◽  
Market Responses ◽  
Earnings Surprises ◽  
Study Methodology ◽  
The Difference ◽  
Reported Earnings

PurposeThe purpose of this study is to investigate whether the earnings surprise influences decision to make earnings announcements during or after the trading hours is influenced by the earnings surprise resulting from the difference between consensus earnings estimates and the actual reported earnings.Design/methodology/approachEvent study methodology was employed to test the hypotheses relating to earnings surprise and timing of earnings announcements. Twelve quarterly earnings announcements of 30 companies, drawn from BSE SENSEX of India, were studied to test the hypothesized relationships.FindingsThe study has found statistically significant differences in the market responses to the earnings announcements made during and after the trading hours. The market demonstrated a negative response to the earnings announcements made after the trading hours. Further, the results of the logistic regression have shown that the presence of significant earnings surprises is likely to induce firms to make earnings announcements after the trading hours. The results indicate that those firms that intend to reduce the overreaction and underreaction to earnings surprises are likely to make earnings announcements after the trading hours.Originality/valueThis paper highlights the market response to the earnings announcement made during and after the regular trading hour. Further, the paper examines if the earnings surprise influences the decision to announce the results.

The readability of 10-K reports and insider trading profitability

2021 ◽  
pp. 031289622110251
Author(s):  
Dewan Rahman ◽  
Barry Oliver
Keyword(s):  
United States ◽  
Information Asymmetry ◽  
Insider Trading ◽  
Market Competition ◽  
The United States ◽  
Jel Classification ◽  
Product Market Competition ◽  
Strategic Information ◽  
Management Disclosures ◽  
Proprietary Cost

This study links the readability of 10-K reports to insider trading profitability. Using a sample of 102,060 insider transactions in the United States between 1994 and 2016, we empirically demonstrate that less readable 10-K reports increase profitability from insider trading. Consistent with the proprietary cost argument, we also document that readability impacts on insider trading profitability are more pronounced for research and development–intensive firms, for firms facing higher product market competition and trade secrecy, and for firms with lower levels of voluntary management disclosures. Overall, this study supports the proprietary cost and strategic information asymmetry channel of readability and suggests that less readable reports lead to the exploitation of information advantages by insiders. JEL Classification: D4, G14, G34, G40

Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency

2011 ◽  
Vol 14 (03) ◽  
pp. 505-533 ◽  
Author(s):  
Michael Firth ◽  
T. Y. Leung ◽  
Oliver M. Rui
Keyword(s):  
United States ◽  
Hong Kong ◽  
Information Asymmetry ◽  
Stock Returns ◽  
Insider Trading ◽  
High Frequency ◽  
The United States ◽  
Trading Frequency ◽  
Trading Activities ◽  
Infrequent Trading

The main purpose of this paper is to examine the legal insider trading activities by directors of companies listed on the Hong Kong Exchange over the period 1993 to 1999. One characteristic of insider trading in Hong Kong is the high frequency of transactions and the large amounts of money involved. Inside purchases appear to signal and correct undervaluation and inside sales appear to signal and correct overvaluation. In contrast to research from Britain and the United States, insider sales are more informative than purchases. On average, insiders earn HK$91,297 per trade, while outsiders who mimic insiders' transactions earn minimal returns. Many firms suffer from infrequent trading and our results are consistent with directors engaging in inside transactions so as to help create a market for the shares. In additional tests, we find that the frequency of insider trading is a function of information asymmetry.

PUSH-PULL THEORY IN BLACK AND WHITE: EXAMINING RACIAL DIFFERENCES IN FIRM STARTUPS BEFORE AND AFTER THE GREAT RECESSION

2021 ◽  
Vol 26 (03) ◽  
Author(s):  
RACHEL MB ATKINS
Keyword(s):  
Racial Differences ◽  
Great Recession ◽  
Panel Study ◽  
The United States ◽  
Black And White ◽  
The Great Recession ◽  
Black Entrepreneurs ◽  
Before And After ◽  
The Difference ◽  
Starting A Business

Although Blacks in the United States suffered disproportionately high unemployment, housing and wealth losses during the Great Recession, little is known about the recession’s impact on Black entrepreneurship. This study uses data from the Panel Study of Income Dynamics (PSID) to estimate the difference in probability of starting a business before and after the recession for Black and White households. While the likelihood of starting a business declined for Whites after the Great Recession there were no statistically significant changes in the rate of firm startups among Blacks. Evidence supports the prosperity pull hypothesis for White but not Black entrepreneurs.

Modernizing America

2000 ◽  
Author(s):  
William B. Meyer
Keyword(s):  
World War I ◽  
Labor Demand ◽  
Human Movement ◽  
The United States ◽  
Black Migration ◽  
New Exodus ◽  
White Southerners ◽  
Black And White ◽  
The North ◽  
The Difference

As late as 1911, a leading American geographer could confidently assert that blacks in the United States would always live chiefly in "the warm, moist air of the Gulf and South Atlantic states," "where they find the heat and moisture in which they thrive"; nature decreed that few would ever settle and fewer survive in the North because they could not withstand the cold. Events, though, were contradicting this blend of racial and climatic determinism. Black migration from the South to the colder states was already substantial. It intensified dramatically during World War I. A boom in labor demand in industry, along with a near-cessation of the immigration from Europe that had once filled it, drew black and white southerners alike in unheard-of numbers to the manufacturing cities of the North. The black exodus to Kansas in 1879 and 1880 had briefly looked as if it would become just such a mass interregional movement of population. But the pioneer Exodusters had suffered from the drastic change in climate, most of all because it affected their livelihoods in farming. Their skills, which lay in cotton growing, were useless in Kansas, and their experience did little to encourage others to follow. The great northward migration of the early twentieth century was a migration not to new farmlands but to the cities for factory and service employment. The difference in climate between southern origin and northern destination did not matter much to it. White southern farmers, fearing the loss of cheap labor, warned departing blacks that they would find the winters of the North too bitter to endure. The new exodus proceeded all the same, and it discredited in the process the long-held idea that either race or habit always imposed a latitudinal pattern on human movement. The change in climate from South to North did mean discomfort or worse for many who undertook it. They suffered especially from the unaccustomed cold that few could afford stoves and fuel to ward off—though they had suffered too from inadequate shelter and clothing in the southern winter.

scholarly journals PENGARUH ASIMETRI INFORMASI TERHADAP BUDGETARY SLACK DENGAN KEJUJURAN SEBAGAI VARIABEL PEMODERASI: PENGANGGARAN PARTISIPATIF (Studi Eksperimen Pada Mahasiswa S1 Akuntansi Universitas Muhammadiyah Bengkulu)

2020 ◽  
Vol 8 (1) ◽  
pp. 9-18
Author(s):  
Yudi Pratama Putra
Keyword(s):  
Information Asymmetry ◽  
Hypothesis Test ◽  
P Value ◽  
Research Subjects ◽  
Budgetary Slack ◽  
The Difference ◽  
Post Hoc ◽  
Academic Year ◽  
High Asymmetry ◽  
High Information

Yudi Partama Putra ; The population of this study is the S1 students of the 2015 Academic Year of Muhammadiyah University of Bengkulu. The number of participants who participated in the experiment is 123 students. The technique of taking samples was using purposive sampling with the criteria of samples had completed Management and Public Sector Accounting. Method of data collection used was through experimental method by using questionnaires and manipulation on research subjects. The validity test used was Pearson Product Correlation test, while the reliability test used was Cronbach Alpha. The hypothesis test used in this research was ANOVA which was accompanied by Post Hoc tukey test. The Research results showed that: 1) The level of information asymmetry has an influential information on the budgetary slack. It was shown by F-count > F-table, which is 8.302> 2.68 and p-value 0.000; 2) The Honesty influenced the correlation between information asymmetry and the budgetary slack. This is shown by F-count > F-table, which was 4,785 < 2.68 and p-value 0.010 <0.05; and 3) The results of tukey HSD and bonferoni showed that there was a difference between low and medium information asymmetry with a difference of 0.77401 and statistically significant with p = 0.0428. The difference between low information asymmetry and high information asymmetry was 0.339581 with a significance of 0.0000, the difference between moderate information asymmetry and high asymmetry was 0.339580 and the difference between medium and high asymmetry was 0.262179 with a significance of 0.003. Key Words: Budgetary slack, information Asymmetry, Honesty

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