Director discretion and insider trading profitability

Authors

Sean Foley, The University of Sydney
Amy Kwan, The University of Sydney
Thomas H. McInish, University of Memphis
Richard Philip, The University of Sydney

Abstract

Using a machine-learning algorithm, we classify over 60,000 director transactions into discretionary and non-discretionary purchases and sales based on the trading motive provided by the insider. We find that discretionary trades by company insiders are more informed than non-discretionary trades. Further, discretionary purchases generate higher abnormal returns (1) for larger purchases, or when the purchase is for (2) the stock of a smaller firm, or (3) a firm with greater information asymmetry.

Publication Title

Pacific Basin Finance Journal

Recommended Citation

Foley, S., Kwan, A., McInish, T., & Philip, R. (2016). Director discretion and insider trading profitability. Pacific Basin Finance Journal, 39, 28-43. https://doi.org/10.1016/j.pacfin.2016.05.005