Insider Investment Horizon

Abstract

We examine the relation between insiders' investment horizon and the information content of their trades with respect to future stock returns. We conjecture that an insider's investment horizon establishes a benchmark for expected patterns of continued trading behavior and thus helps identify unexpected insider trades, which should be more informative in efficient markets. Consistent with this conjecture, the trades of short-horizon insiders are both more unexpected and more informed, on average, than those of long-horizon insiders. Short-horizon insiders and their firms also tend to display characteristics that are associated with a greater focus on short-termism.

Judge Ideology, SEC Enforcement, and Insider Trading

“…In addition to our main analyses based on the intensity of opportunistic insider sales, we also explore whether judge ideology affects the information content of insider trades, measured with the predictability of insider trades with respect to future stock performance (Akbas, Jiang, and Koch 2020;Goldie et al, 2020). We find that liberal judge ideology is related to less informative insider sales, consistent with reduced insider trading involving material non-public information.…”

“…To provide further evidence regarding the effect of judge ideology, we investigate the information content of insider sales. Specifically, we examine whether judge ideology is associated with the predictability of insider trades with respect to future stock performance (e.g., Akbas et al, 2020;Goldie et al, 2020) by estimating the following equation:…”

“…Following prior studies (Akbas et al, 2020;Goldie et al, 2020), we measure future stock price performance, Abnormal_Return j,t+1 , as the Fama-French four-factor alpha, in percentage terms, for firm j in month t+1 following the month t in which insider i trades. SaleSize i,j,t is the tercile rank of the number of shares sold by insider i of firm j in month t. LiberalCourt j,t is the measure of judge ideology in the circuit court with jurisdiction over firm j in month t. To facilitate interpretation, we also estimate a version in which LiberalCourt j,t is replaced with an indicator variable, High_LiberalCourt j,t , that equals one if judge ideology is in the top tercile in our sample, and zero otherwise.…”

The Endurance of Shareholder Value Maximization as the Preferred Corporate Objective

“…Although the reasons why the investment horizons of institutional shareholders differ is not well‐understood, there is an emerging literature in financial economics on whether and how investor horizons impact stock prices (see, e.g., Akbas et al, 2020 and the references therein). One well‐recognized reason for the prevalence of different horizons of institutional shareholders is the maturities of their liabilities (Derrien et al, 2013).…”

The Information Content of Indirect Insider Trading: Empirical Evidence from Vietnam Security Market

“…According to Cohen, Malloy and Pomorski [5], opportunistic trading are strong predictors of future return. Akbas, Jiang, and Koch [1] document that the performance of short-horizon insiders to forecast future stock prices are better than that of long-horizon insiders since SH insiders are more likely to be unexpected, on average, when compared with the typical expected trade of LH insiders. Empirical results show that the impact of opportunistic trades in indirect insider trading on future return is stronger than that in direct insider trading.…”