Do corporate insiders trade on future stock price crash risk?

He, Guanming; Ren, Helen Mengbing; Taffler, Richard

doi:10.1007/s11156-020-00936-3

Cited by 42 publications

(51 citation statements)

References 77 publications

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“…Insiders have information that is not yet publicly available, which can be used to assess the value of the company and predict future firm performance [34]. Insider sell-off behavior is positively associated with the risk of a stock price crash [35]. e insider's choice to sell stocks sends negative signals to outside investors, thereby raising the probability of a future crash risk.…”

Section: Theory and Hypothesismentioning

confidence: 99%

“…ey acquire and process data about firms using public information, field research, and other sources and reduce information asymmetry between firms and investors [37,38]. According to He et al [35], analyst coverage reduces stock price crash risk via analysts' role as information intermediaries and monitors. Nonetheless, when analysts cannot fully perform the information intermediary role, it is more difficult for investors to learn the real situation of the firm and they cannot accurately identify the noise in the media coverage; thus, the impact of media sentiment on future stock price risk is more evident through driving the investors' decision-making process.…”

Section: Theory and Hypothesismentioning

confidence: 99%

“…Next, we examine the Hypothesis H3c. Follow He et al [35], we calculate the analysts coverage as the number of analysts forecast over the past three years. en, we divide the total sample into two subsamples: lower coverage and higher coverage groups, according to 30% and 70% quantiles of analysts' coverage to firms.…”

Section: Information Intermediationmentioning

confidence: 99%

See 2 more Smart Citations

News Sentiment and the Risk of a Stock Price Crash Risk: Based on Financial Dictionary Combined BERT‐DCA

Kong

2022

Discrete Dynamics in Nature and Society

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This study combines a financial knowledge dictionary and pretraining method based on BERT (Bidirectional Encoder Representation from Transformers) to construct a deep learning model for identifying stock news sentiments. The study then calculates the sentiment metrics of all stocks and analyzes the impact of news sentiment on the risk of a stock price crash and its heterogeneity. The results show that stocks with more positive sentiment metrics have a higher risk of crash in the following year. We also investigate the information intermediation and investor sentiment channels by which news sentiment affects the risk of a crash. The results show that more net insider sales, lower information transparency, and less analyst coverage amplify the impact of news sentiment on future crash risk, which is consistent with the information intermediation channel. Additionally, more retail investor positions, more active investor sentiment, and divergence between analysts’ opinions and news amplify the impact of news sentiment on the risk of a future stock price crash, which is consistent with the investor sentiment channel.

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Section: Theory and Hypothesismentioning

confidence: 99%

Section: Theory and Hypothesismentioning

confidence: 99%

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News Sentiment and the Risk of a Stock Price Crash Risk: Based on Financial Dictionary Combined BERT‐DCA

Kong

2022

Discrete Dynamics in Nature and Society

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“…According to empirical evidence, it was found that proxy variables of information diffusion would exert a great influence on stock price fluctuations [11][12][13]. In particular, the dramatic diffusion of released bad news would lead to an increase in the stock price fall [3,14]. However, issues such as how information diffusion affects the stock market and how to quantify such effects remain unknown [15].…”

Section: Related Literaturementioning

confidence: 99%

“…However, it is prone to crises, especially stock price crash risk, because of the high sensitivity and volatility. As shown in prior studies, one of the fundamental causes of stock price crash risk is owed to the bad news hoarding [1][2][3]. Concretely, there exists a critical threshold at which it is too costly for management to withhold the bad news.…”

Section: Introductionmentioning

confidence: 97%

Information Contagion and Stock Price Crash Risk

Zhang

Wang

Yao

2021

Mathematical Problems in Engineering

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We introduce continuity and temporariness into the independent cascade model to depict information diffusion in a social network. Investor behavior changes are determined according to the process of information diffusion, and the investment portfolio model consisting of sentiments is proposed to reveal the fire sales of stocks and the resulting stock price crash risk. Therefore, the relationship between information diffusion and stock price crash risk is established, and the contagion of stock price crash risk is analyzed from the perspective of information diffusion. Furthermore, some immunization strategies of networks are compared to prevent stock price crash risk. The results show that the tendency of stock price crash risk is consistent with that of information diffusion, which indicates that information diffusion before the fire sales is the key to triggering stock price crash risk. Moreover, investors with many ties contribute more to information diffusion than others; hence, immunization strategies of networks based on global information are more effective in preventing stock price crash risk than that based on local information. This study provides a new perspective for the study of contagion risk in the stock market, and it hints at the possibility of regulatory intervention to prevent stock price crash risk.

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Derivative disclosures and managerial opportunism

He,

Ren

2023

Journal of Futures Markets

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Derivatives are increasingly used by managers not only to hedge risks but also to pursue nonhedging activities for fulfilling opportunistic incentives. The Statement of Financial Accounting Standards No. 161 (SFAS 161) requires firms to disclose their objectives and strategies for using derivatives. Using the adoption of this standard, we examine whether and how derivative disclosures influence managerial opportunistic behavior. We employ insider trades and stock price crash risk to capture managerial opportunism. Applying a difference‐in‐differences research design with hand‐collected data on derivative designations, we find that, after the implementation of SFAS 161, derivative users that comply with SFAS 161 experience a significantly greater decrease in both insider trades and stock price crash risk, compared with a matched control sample of nonderivative‐users. We further provide evidence to suggest that SFAS 161 curbs managerial opportunism via reducing information asymmetry between corporate insiders and outside investors and enhancing the effectiveness of derivative hedging.

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Do corporate insiders trade on future stock price crash risk?

Cited by 42 publications

References 77 publications

News Sentiment and the Risk of a Stock Price Crash Risk: Based on Financial Dictionary Combined BERT‐DCA

News Sentiment and the Risk of a Stock Price Crash Risk: Based on Financial Dictionary Combined BERT‐DCA

Information Contagion and Stock Price Crash Risk

Derivative disclosures and managerial opportunism

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