- Information Trading by Corporate Insiders Based on Accounting Accruals - Forecasting Economic Performance
- Accounting & Finance
- Volume | Issue number
- 46 | 5
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
In this paper, we test whether directors’ (corporate insiders) trading in Australia, based on accounting accruals, provides incremental information in forecasting a firm's economic performance. We determine that directors’ trading on negative accruals in larger firms has greater forecasting content and is associated with 1-year-ahead bull market phases. Moreover, arbitrage portfolios set up to mimic insider trading can earn 1-year-ahead excess size-adjusted arbitrage returns of up to 12.2 per cent. Results are consistent with directors hiding their trades in liquid well-traded firms and in providing incremental information above that supplied by a continuous information regime.
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