The aim of this thesis is to contribute to the literature in finance and economics providing a deeper understanding about insider trading and its effects over information dissemination in the financial markets. To this end, this thesis is organized in three chapters. The first chapter tests whether insiders exploit their stock’s mispricing after earnings announcements to make profitable trades. The analysis involves estimating a model of ‘normal’ market reaction to an earnings announcement and use the deviation of the fitted value from the realized market reaction as a measure of mispricing after earnings announcements. In line with the mispricing hypothesis, the results show that insiders sell (buy) more often after large positive (negative) values of our mispricing measure and earn significant post trading returns. The second chapter extends the analysis in the first chapter by exploring more deeply the source of that mispricing. Focusing on insider sales, this chapter studies whether insiders exploit investors’ sentiment during earnings announcements to make profitable trades. In line with Miller (1977) model, the results show that insiders sell in response to market reaction of earnings announcements that are associated with an increase in divergence in investors’ opinions about their firms’ valuation and more binding short sale constraints. Finally, the third chapter studies the interaction between 2 types of informed investors, insiders and short sellers, during earnings announcements. The chapter documents that insiders and short sellers are skilled information processors who compete for trading on the news released at earnings announcements. In line with competition, stock returns are significantly more negative faster for stocks with intensive trading by both traders together than in cases where they trade intensively alone. The evidence suggests that insiders and short sellers tend to accelerate their processing skills after earnings announcements and trade faster making stock prices more efficient.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:714976 |
| Date | January 2017 |
| Creators | Contreras, Harold |
| Publisher | University of Warwick |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | http://wrap.warwick.ac.uk/88606/ |
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