Skip to main content
×
Home

A Comparison of the Information Content of Insider Trading and Management Earnings Forecasts

Abstract
Abstract

In this paper, insider trading is viewed as a signal of managements' assessments of firms' future prospects and its information content is compared to that in managements' earnings forecasts. These forecasts are explicit statements of managements' assessments of future prospects. A number of measures of insider trading designed to capture the information aspect of trading are investigated. The results indicate that the insider trading measures do not capture the information conveyed in earnings forecasts, although there is evidence that insider trading measures that take into account the timing of trades relative to the date of the release of the forecast are informative.

Copyright
References
Hide All
[1]Aharony J., and Swary I.. “Quarterly Dividend and Earnings Announcements and Stockholders' Returns: An Empirical Analysis.” Journal of Finance, Vol. 35 (03 1980), pp. 112.
[2]Anderson T. W.An Introduction to Multivariate Statistical Analysis. New York: John Wiley & Sons (1958).
[3]Baesel J. B., and Stein G. R.. “The Value of Information: Inferences from the Profitability of Insider Trading.” Journal of Financial and Quantitative Analysis, Vol. 14 (09 1979), pp. 553571.
[4]Ball R., and Watts R.. “Some Time-Series Properties of Accounting Income Numbers.” Journal of Finance, Vol. 27 (06 1972), pp. 663682.
[5]Banz R. W.The Relationship between Market Value and Return on Common Stocks.” Journal of Financial Economics, Vol. 9 (03 1981), pp. 318.
[6]Charest G.Dividend Information, Stock Returns and Market Efficiency.” Journal of Financial Economics, Vol. 6 (06/09 1978), pp. 297330.
[7]Demsetz H. “Perfect Competition, Regulation, and the Stock Market.” In Economic Policy and the Regulation of Corporate Securities, Manne H. G. ed., Washington, D.C.: American Enterprise Institute (1969).
[8]Gabriel K. R. “A Comparison of Some Methods of Simultaneous Inference in MANOVA.” In Multivariate Analysis-II, Krishnaiah P. R., ed. New York: Academic Press (1969).
[9]Gonedes N. J.Properties of Accounting Numbers: Models and Tests.” Journal of Accounting Research, Vol. 11 (Autumn 1973), pp. 212237.
[10]Gonedes N. J.Risk, Information, and the Effects of Special Accounting Items on Capital Market Equilibrium.” Journal of Accounting Research, Vol. 13 (Autumn 1975), pp. 220256.
[11]Gonedes N. J.Corporate Signalling, External Accounting, and Capital Market Equilibrium: Evidence on Dividends, Income and Extraordinary Items.” Journal of Accounting Research, Vol. 16 (Spring 1978), pp. 2679.
[12]Finnerty J. E.Insiders and Market Efficiency.” Journal of Finance, Vol. 31 (09 1976), pp. 11411148.
[13]Finnertly J. E.Insiders' Activity and Insider Information: A Multivariate Analysis.” Journal of Financial and Quantitative Analysis, Vol. 11 (06 1976), pp. 205215.
[14]Hirshleifer J.The Private and Social Value of Information and the Reward to Incentive Activity.” American Economic Review, Vol. 61 (09 1971), pp. 561574.
[15]Jaffe J. F.Special Information and Insider Trading.” Journal of Business, Vol. 47 (07 1974), pp. 410428.
[16]Jaggi B.A Note on the Information Content of Corporate Annual Earnings Forecasts.” Accounting Review, Vol. 53 (10 1978), pp. 961967.
[17]Lorie J. H., and Niederhoffer V.. “Predictive and Statistical Properties of Insider Trading.” Journal of Law and Economics, Vol. 11 (04 1968), pp. 3551.
[18]Nichols D. R., and Tsay J. J.. “Security Price Reactions to Long-Range Executive Earnings Forecasts.” Journal of Accounting Research, Vol. 17 (Spring 1978), pp. 140158.
[19]Patell J. M. [Corporate Forecasts of Earnings per Share and Stock Price Behavior: Empirical Tests.” Journal of Accounting Research, Vol. 14 (Autumn 1976), pp. 246276.
[20]Penman S. H.An Empirical Investigation of the Voluntary Disclosure of Corporate Earnings Forecasts.” Journal of Accounting Research, Vol. 18 (Spring 1980), pp. 132160.
[21]Penman S. H.Insider Trading and the Dissemination of Firms' Forecast Information.” Journal of Business, Vol. 55 (10 1982), pp. 92116.
[22]Penman S. H.The Predictive Content of Earnings Forecasts and Dividends.” Journal of Finance, Vol. 38 (10 1983), pp. 11811199.
[23]Pettit R. R.Dividend Announcements, Security Performance, and Capital Market Efficiency.” Journal of Finance, Vol. 27 (12 1972), pp. 9931007.
[24]Watts R., and Leftwich R. W.. “The Time Series of Annual Accounting Earnings.” Journal of Accounting Research, Vol. 15 (Autumn 1977), pp. 253271.
[25]Wu H. “Corporate Insider Trading, Profitability, and Stock Price Movement.” Ph.D. Dissertation, University of Pennsylvania (1963).
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 9 *
Loading metrics...

Abstract views

Total abstract views: 111 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 20th November 2017. This data will be updated every 24 hours.