STRATEGIC INSIDER TRADING AROUND ANALYST RECOMMENDATIONS

Abstract

THIS PAPER EXAMINES INSIDERS? TRADING BEHAVIOR DURING THE PERIOD IMMEDIATELY SURROUNDING THE RELEASE OF ANALYST RECOMMENDATIONS. IT IS SHOWN THAT INSIDERS ARE MORE LIKELY TO TRADE AFTER THE RELEASE OF ANALYST RECOMMENDATIONS THAN BEFOREHAND. IN FACT, INSIDERS PLACE 26.8% MORE TRADES AFTER, RATHER THAN BEFORE, THE PUBLICATION OF THESE DOCUMENTS. IT IS ALSO SHOWN THAT THIS TRADING PATTERN IS INCONSISTENT WITH LIQUIDITY CONCERN. INSTEAD, THE EVIDENCE SUGGESTS THE NEED FOR POLITICAL COVER AND A DESIRE TO TAKE ADVANTAGE OF MARKET TIMING EXPLAIN INSIDERS? TRADING BEHAVIOR AROUND ANALYST RECOMMENDATIONS. OVERCONFIDENT AND EXPERIENCED CEOS ARE PARTICULARLY LIKELY TO USE A MARKET TIMING STRATEGY AFTER ANALYST RECOMMENDATIONS ARE MADE PUBLIC.