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Insiders’ Information Advantage: Evidence from Competition with Short Sellers

Published online by Cambridge University Press:  10 October 2025

Harold Contreras ,
Jana P. Fidrmuc  and
Roman Kozhan Open the ORCID record for Roman Kozhan [Opens in a new window]
Harold Contreras
Affiliation:
University of Chile, School of Economics and Business hcontrer@fen.uchile.cl
Jana P. Fidrmuc
Affiliation:
University of Warwick, Warwick Business School Jana.Fidrmuc@wbs.ac.uk
Roman Kozhan*
Affiliation:
University of Warwick, Warwick Business School
*
roman.kozhan@wbs.ac.uk (corresponding author)
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Abstract

We study the information content of corporate insiders’ trades after earnings announcements. We find little evidence that insiders trade on foreknowledge of material information in the post-SOX period. Conditioning on short-selling activity as a proxy for demand of arbitrageurs who exploit short-term mispricing, we show that insiders profit from selling because of their ability to exploit short-term mispricing after earnings releases. In contrast before SOX, insiders do take advantage of foreknowledge of material information while selling. Insider purchases are based on foreknowledge of material information both before and after SOX, but they are rare and have small economic magnitude.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 40
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We are grateful to Constantinos Antoniou, Viet Nga Cao, Oleg Chuprinin, Carina Cuculiza, Terry Hendershott, Dirk Jenter, Olga Klein, Adriana Korczak, Piotr Korczak, Vikas Raman, Elvira Sojli, and Chendi Zhang, as well as participants at the 2017 FIRN Sydney Market Microstructure Meeting 2017, 2017 FMA Annual Meeting, 2017 EFMA Annual Meeting, and research seminars at the University of Chile and Warwick Business School for providing helpful comments and suggestions.

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