لایب سان

Author(s): H. Nejat Seyhun

Publisher: MIT Press, Year: 2015

ISBN: 9780262283434,0262283433

Contents Preface xiii Acknowledgments xvii Introduction xix 1 Insider-trading patterns 1 Some preliminaries 1 Conflicting transactions 3 Frequency of insider trading 5 Insider-trading cycles 6 Probability of trading against insiders 8 Normal insider-trading patterns 14 Seasonal patterns in insider trading 17 Do insiders manipulate stock prices? 18 Insider-trading regulations 23 Should insider trading be regulated? 28 Conclusions and investment implications 32 2 Does insider trading predict future stock returns? 35 Background 35 Stock price movements following insiders’ transactions 37 Relative performance 41 viiiContents Year-to-year profitability of insider trading 43 Duration of the stock price reaction to insider trading 46 Prior stock price movements 49 Profitability of active and passive transactions 54 Strengthening insider-trading signals 58 Do insiders manipulate stock prices? 61 Conclusions and investment implications 63 3 A stock-picking strategy 67 Additional indicators of profitability 67 Identity of insiders 68 Volume and profitability of insider trading 74 Interaction between volume and identity of insiders 80 Volume and officers and directors 83 Volume and top executives 84 Sales versus purchases 86 Firm size and profitability of insider trading 89 Interaction among identity of insiders, firm size, and volume of trade 92 Consensus among insiders 98 Insiders’ option exercises and other transactions 100 Conclusions and investment implications 104 4 Predicting future market returns 107 Market timing 107 Aggregate insider trading 109 Aggregate insider trading and future real activity 111 50%–50% rule 114 Implications for the mutual fund investor 124 Other cutoff rules 125 Other market-timing strategies based on aggregate insider trading 128 Contents ix Predicting industry returns 131 Conclusions and investment implications 134 5 Crash of October 1987 and insider trading 137 Why did the stock market crash in October 1987? 137 Anatomy of the crash 140 Insider trading around the crash of October 1987 143 Conclusions and investment implications 149 6 Dividend yields and insider trading 151 Dividend yields and future stock returns 151 Predictive ability of the market dividend yield 153 Forecasting characteristics of dividend yields 155 Market dividend yields and aggregate insider trading 159 Intensive insider trading and dividend yields 164 Changes in dividend yields 166 Firm-specific dividend yields 170 Conclusions and investment implications 172 7 Dividend initiations 175 Why do firms pay dividends? 175 Dividend initiation process 178 Stock price effects of dividend initiations 179 Dividend initiations and insider trading 180 Conclusions and investment implications 189 8 Earnings announcements 191 Information content of earnings announcements 191 Prior literature on earnings announcements 193 Stock price reaction around earnings announcements 194 Insider trading and earnings announcements 199 Insider trading, earnings surprise, and the stock price drift 201 xContents Large insider trading 204 Conclusions and investment implications 207 9 Price-earnings ratio 209 Value- and growth-based investing and future stock returns 209 Relation between P/E ratios and future stock returns 210 Information content of P/E ratios 215 Predictive power of absolute P/E ratios 218 Predictive power of relative P/E ratios 225 Why do the P/E ratios predict future stock returns? 227 Large insider-trading volumes and P/E ratios 231 Earnings announcements and price-earnings ratios 233 Conclusions and investment implications 234 10 Book-to-market ratio 237 Value- and growth-based investment approaches 237 Predictive power of absolute B/M ratios 242 Absolute B/M ratios and net stock returns 247 Relation between insider trading and absolute B/M ratios 248 Predictive power of relative B/M ratios 251 Insider trading and relative B/M ratios 253 Large insider trading and relative B/M ratios 256 Conclusions and investment implications 258 11 Insider trading in target firms 261 What is the information content of takeover announce- ments? 261 Price effects of corporate takeovers 263 Pre-announcement stock price drift 267 Insider trading in target firms 271 Conclusions and investment implications 277 Contents xi 12 Insider trading in bidder firms 279 How do bidder firms fare in takeovers? 279 Stock price performance of bidder firms 281 Insider trading in bidder firms 285 Conclusions and investment implications 290 13 Momentum and mean reversion 293 Trend investing 293 Alternative explanation for stock price trends 295 Short-horizon predictability 298 Long-horizon predictability 308 Conclusions and investment implications 315 14 Implementation and conclusions 317 Outsiders’ profits 317 Reporting delays 318 Transaction costs 321 Potential profits from mimicking insiders 322 Determinants of outsiders’ profits 325 Risks of mimicking insiders 331 Trade-off between profitability and risk of losses 334 Multiple mimicking transactions 336 Recommendations to investors 339 Conclusions 340 Notes 343 References 377 Index 391

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