This paper examines insider trading, specifically trades by corporate insiders around quarterly earnings announcements. Announcements were broken up into three categories: earnings above analyst expectations, earnings below expectations, and earnings in line with expectations. Trade data was collected from the thirty companies of the Dow Jones Industrial Average from 2012-’13. The trades were sorted by purchases and sales by date and analyzed with the earnings report of which the trades were made. Only trades in the interval from twenty days before the announcement date to twenty days after the announcement date were considered. The prediction was that corporate insiders would leverage their inside knowledge to delay trading until after the earnings announcement. They would benefit financially by trading after the announcement and draw less attention from the SEC, as they delayed trading until the announcement became public information. However, knowing how the market would react would allow them to make a meditated decision. For an announcement that was below analyst expectations, corporate insiders should buy stock after the market reaction causes the price to drop. Our findings were that corporate insiders did in fact wait until the announcement day and overall were net buyers. The study will give better insights into how corporate insiders trade and how restrictions can be made to stop this insider trading activity.
Recommended CitationWing, Seth, "The Discreet Trader" (2015). Honors Projects in Finance. Paper 32.