Return Synchronicity and Insider Trading Profitability*

Claire Y.C. Liang; Zhenyang Tang; Xiaowei Xu

doi:10.1111/irfi.12246

journal article Nov 13, 2018

Return Synchronicity and Insider Trading Profitability*

Claire Y.C. Liang Zhenyang Tang Xiaowei Xu

International Review of Finance Vol. 20 No. 4 pp. 857-895 · Wiley

View at Publisher Save 10.1111/irfi.12246

Abstract

Abstract

We investigate the association between stock return synchronicity and insider trading profitability. Morck, Yeung and Yu (2000) suggest that greater stock return synchronicity (or R
2
) reflects less firm‐specific information in stock prices. Consistent with the view, we find significantly higher insider profitability in firms with greater return synchronicity. The results mainly reside in opportunistic trades rather than in routine trades, and are more pronounced for trades by key insiders such as officers and directors. Furthermore, our results are weaker for industry bellwether firms, and stronger for firms with more opaque earnings or lower institutional ownership. We also document significantly more insider purchasing activity in firms with greater return synchronicity. Overall, our results support the view that greater return synchronicity means less firm‐specific information in stock prices, and suggest that insiders take advantage of this by trading and profiting more from firms with greater return synchronicity.

Topics

No keywords indexed for this article. Browse by subject →

References

75

[1]

10.1111/0022-1082.00305

[2]

10.1111/j.1475-679x.2005.00185.x

[3]

10.1016/0304-405x(95)00833-z

[4]

10.1016/j.jcorpfin.2012.02.006

[5]

10.1177/0148558x0401900301

[6]

10.1016/s1386-4181(01)00024-6

[7]

10.2307/3665727

[8]

10.1111/irfi.12016

[9]

10.1016/s0304-405x(00)00055-6

[10]

10.1093/rfs/hhp028

[11]

10.1016/j.jbankfin.2013.11.022

[12]

10.1111/j.1540-6261.2007.01230.x

[13]

10.1016/j.jbankfin.2008.08.011

[14]

Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk

John Y. Campbell, Martin Lettau, Burton G. Malkiel et al.

The Journal of Finance 10.1111/0022-1082.00318

[15]

10.1016/j.jfineco.2014.07.002

[16]

10.1016/j.jfineco.2005.03.010

[17]

10.1016/j.finmar.2012.09.007

[18]

Price Informativeness and Investment Sensitivity to Stock Price

Qi Chen, Itay Goldstein, Wei Jiang

Review of Financial Studies 10.1093/rfs/hhl024

[19]

10.1016/j.iref.2014.03.004

[20]

10.1111/j.1540-6261.2004.00681.x

[21]

10.1111/fima.12177

[22]

The Small World of Investing: Board Connections and Mutual Fund Returns

Lauren Cohen, Andrea Frazzini, Christopher Malloy

Journal of Political Economy 10.1086/592415

[23]

Decoding Inside Information

Lauren Cohen, Christopher Malloy, Lukasz Pomorski

The Journal of Finance 10.1111/j.1540-6261.2012.01740.x

[24]

10.2308/accr-50186

[25]

Cziraki P. E.Lyandres andR.Michaely. (2017) ‘What Do Insiders Know? Evidence from Insider Trading around Share Repurchases and SEOs’ Working Paper No. 2732969. 10.2139/ssrn.2732969

[26]

Transparency, Price Informativeness, and Stock Return Synchronicity: Theory and Evidence

Sudipto Dasgupta, Jie Gan, Ning Gao

The Journal of Financial and Quantitative Analysis 10.1017/s0022109010000505

[27]

Dechow P. M. "Detecting Earnings Management" The Accounting Review (1995) 10.2308/tar-9505096112

[28]

Demsetz H. "Corporate Control, Insider Trading, and Rates of Return" American Economic Review (1986)

[29]

10.1007/s11142-014-9313-8

[30]

Does Greater Firm‐Specific Return Variation Mean More or Less Informed Stock Pricing?

Artyom Durnev, Randall Morck, Bernard Yeung et al.

Journal of Accounting Research 10.1046/j.1475-679x.2003.00124.x

[31]

Value‐Enhancing Capital Budgeting and Firm‐specific Stock Return Variation

Art Durnev, Randall Morck, Bernard Yeung

The Journal of Finance 10.1111/j.1540-6261.2004.00627.x

[32]

10.1111/j.1540-6261.1992.tb04398.x

[33]

Dissecting Anomalies with a Five-Factor Model

Eugene F. Fama, Kenneth R. French

Review of Financial Studies 10.1093/rfs/hhv043

[34]

10.1111/j.1540-6261.2006.01008.x

[35]

The market pricing of accruals quality

Jennifer Francis, Ryan LaFond, Per Olsson et al.

Journal of Accounting and Economics 10.1016/j.jacceco.2004.06.003

[36]

10.1111/j.1475-679x.2008.00267.x

[37]

10.1016/j.jacceco.2003.09.004

[38]

Gassen J. H. A.Skaife andD.Veenman. (2016) ‘Illiquidity and the Measurement of Stock Price Synchronicity’ SSRN Working Paper No. 2405465. 10.2139/ssrn.3091724

[39]

10.1016/j.jcorpfin.2016.04.008

[40]

Perks and the informativeness of stock prices in the Chinese market

Ferdinand A. Gul, Louis T.W. Cheng, T.Y. Leung

Journal of Corporate Finance 10.1016/j.jcorpfin.2011.07.005

[41]

10.1093/rfs/hhv042

[42]

10.2307/3665970

[43]

Hou K. L.Peng andW.Xiong. (2006) 'R2 and Price Inefficiency' Fisher College of Business Working Paper No. 2006‐03‐007 10.2139/ssrn.954559

[44]

Charles A. Dice Center Working Paper No. 2006‐23.

[45]

10.1506/0277-1110-4434-m627

[46]

Opaque financial reports, R2, and crash risk☆

Amy P. Hutton, Alan J. Marcus, Hassan Tehranian

Journal of Financial Economics 10.1016/j.jfineco.2008.10.003

[47]

10.1162/003465303765299936

[48]

10.1016/j.jbankfin.2009.11.016

[49]

R2 around the world: New theory and new tests☆

L Jin, S Myers

Journal of Financial Economics 10.1016/j.jfineco.2004.11.003

[50]

10.1111/j.1540-6261.1991.tb04621.x

Showing 50 of 75 references

Metrics

10

Citations

75

References

Details

Published: Nov 13, 2018
Vol/Issue: 20(4)
Pages: 857-895
License: View

Authors

C

Claire Y.C. Liang

College of Business, Southern Illinois University Carbondale IL

Z

Zhenyang Tang

Graduate School of Management, Clark University Worcester MA

X

Xiaowei Xu

College of Business, University of Rhode Island Kingston RI

Cite This Article

Claire Y.C. Liang, Zhenyang Tang, Xiaowei Xu (2018). Return Synchronicity and Insider Trading Profitability*. International Review of Finance, 20(4), 857-895. https://doi.org/10.1111/irfi.12246

Return Synchronicity and Insider Trading Profitability*

You May Also Like