A firm׳s investment in corporate social responsibility (CSR) builds a positive image of caring for social good and imposes additional costs on executives׳ informed trading, which is widely perceived ...self-serving. We thus expect executives of CSR-conscious firms to be more likely to refrain from informed trading. We find that executives of CSR-conscious firms profit significantly less from insider trades and are less likely to trade prior to future news than executives of non-CSR-conscious firms. The negative association between CSR and insider trading profits is more pronounced when executives׳ personal interests are more aligned with the interests of the firm.
•Executives of CSR-conscious firms profit less from insider trading than other executives.•Executives of CSR-conscious firms are less likely to trade on future corporate news.•The constraining effect of CSR on insider trading is stronger for executives who are CSR advocates.•The constraining effect of CSR is stronger when executives own more company stocks.
•Economic policy uncertainty increases frequency and volume of insider trades.•Insider trades during high uncertainty periods negatively affect firm performance.•The economic policy uncertainty ...effect varies across firms and countries.•Both investor sentiment and firm risks increase during periods of high uncertainty.
This study examines whether economic policy uncertainty affects insider trades. Using data from 22 countries, I find a positive association between economic policy uncertainty and the frequency and volume of insider trades. Moreover, there is a negative relationship between insider trades and future firm performance during periods of high economic policy uncertainty. The effect is larger in firms with a poor information environment, firms with less strict monitoring, and for firms that are more sensitive to economic policy uncertainty. The findings are robust to alternative sample periods, alternative dependent and independent variables, different model specifications, and after including additional country-level factors. Additional analysis suggests that investor sentiment and firm risks increase during periods of high uncertainty. Overall, I provide evidence that increased economic policy uncertainty enlarges the information advantage of insiders, and increases insider trading.
We study how the presence of short sellers affects the incentives of the insiders to trade on negative information. We show it induces insiders to sell more (shares from their existing stakes) and ...trade faster to preempt the potential competition from short sellers. An experiment and instrumental variable analysis confirm this causal relationship. The effects are stronger for “opportunistic” (i.e., more informed) insider trades and when short sellers׳ attention is high. Return predictability of insider sales only occurs in stocks with high short-selling potential, suggesting that short sellers indirectly enhance the speed of information dissemination by accelerating trading by insiders.
This paper reviews the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, ...trades, and market outcomes. The existence of disclosure processing costs means that disclosures are not “public” information as traditionally defined, but instead can be a form of costly private information. Conceptualizing disclosures as private information makes it clear that learning from disclosures is an active economic choice and that disclosure pricing cannot be perfectly efficient. We review the analytical and empirical literature on sources of processing costs and how these costs affect equity market outcomes, primarily within rational equilibria. We also discuss studies of the feedback effects of investors' processing costs on managers’ choices about disclosure and corporate actions. We conclude that disclosure processing costs have implications for a wide array of accounting research and phenomena, but we are only just beginning to understand their effects.
•We review the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, trades, and market outcomes.•The existence of processing costs means that learning from disclosures is an active economic choice, much like learning from any private information source. Rational investors expect a competitive return to processing and, thus, disclosure pricing cannot be perfectly efficient.•There is extensive evidence that disclosure processing costs affect all types of investors, from the smallest to most sophisticated, and can affect stock returns and other market outcomes within rational equilibria.•We organize the literature based on four sources of variation in disclosure processing costs: over time for a given investor; across types of investors; across disclosures; and variation driven by new technologies.•We conclude that disclosure processing costs have implications for a wide array of accounting research, but we are only just beginning to understand their effects.
Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster informational efficiency. We study ...traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market causes both informed and uninformed traders to be more active in the unregulated market. This market, thus, sees more trading volume, lower spreads, and less mispricing. Nevertheless, uninformed traders suffer greater losses in unregulated markets, while informed traders profit from the absence of regulation.
•Informed and uninformed traders are more active in an unregulated market.•Market quality is higher in unregulated markets compared to regulated markets.•Uninformed traders suffer losses while informed traders gain in unregulated markets.•Policymakers do not have to take the present regime when choosing the future regime.
•We study the joint effects of regulations forbidding informed trading and shorting of assets and cash.•Allowing short positions and allowing informed trading leads to less mispricing and smaller ...spreads.•Despite evidence in the literature, we find no strong interaction effects between the regulations we study.
Modern capital markets are subject to many interventions and regulations, some of which curtail the implementation of specific trading strategies in a market. While we understand much of these regulations’ individual effects, the picture is less clear about their joint effects. This paper considers the interaction of two regulations, namely rules limiting shorting of assets and cash, and rules limiting insider trading. For these regulations, prior research shows spikes in short-selling activity around the revelation of insider information, which different studies trace to different causes. Among other results, we find that both allowing short positions and allowing informed trading causes informed traders to increase their market activity and causes mispricing and spreads to diminish. Nevertheless, we find no evidence for significant interaction effects between the two regulations.
Tracking Retail Investor Activity BOEHMER, EKKEHART; JONES, CHARLES M.; ZHANG, XIAOYAN ...
The Journal of finance (New York),
October 2021, Letnik:
76, Številka:
5
Journal Article
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ABSTRACT
We provide an easy method to identify marketable retail purchases and sales using recent, publicly available U.S. equity transactions data. Individual stocks with net buying by retail ...investors outperform stocks with negative imbalances by approximately 10 bps over the following week. Less than half of the predictive power of marketable retail order imbalance is attributable to order flow persistence, while the rest cannot be explained by contrarian trading (proxy for liquidity provision) or public news sentiment. There is suggestive, but only suggestive, evidence that retail marketable orders might contain firm‐level information that is not yet incorporated into prices.
Corporate insiders have superior access to information; their trades, particularly purchases, should be informative. However, the extent of their informational advantage may be limited by the ...presence of other informed market participants. We document less frequent insider purchases in stocks with relatively high options trading activity. These purchases are followed by negligible abnormal returns. In contrast, stocks with less active options trading experience more frequent insider purchases, which yield positive abnormal returns over the subsequent six months. Our novel approach highlights the options market's role in screening uninformed insider trades, which ultimately contributes to more efficient stock market price formation.
Government agencies routinely allow pre-release access to information to accredited news agencies under embargo agreements. Using high-frequency data, we find evidence consistent with informed ...trading during embargoes of Federal Open Market Committee (FOMC) scheduled announcements. The E-mini Standard & Poor’s 500 futures’ abnormal order imbalances are in the direction of subsequent policy surprises and contain information that predicts the market reaction to the policy announcements. The estimated informed trades’ profits are arguably large. Notably, we find no evidence of informed trading prior to the start of FOMC news embargoes or during lockups ahead of nonfarm payroll, US Producer Price Index, and gross domestic product data releases.
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