Insiders’ characteristics and market timing capabilities: buying and selling evidence

Abstract

Purpose

This paper aims to study individual managers’ market timing capabilities while trading (either buying or selling) stock from their portfolios, as well as the impact of gender, seniority and trading frequency on their market timing performance.

Design/methodology/approach

This study uses a relative transaction price approach introduced by Dittmar and Field (2015) on 837 aggregated trades made by managers from their portfolios between 2010 and 2015. These were taken from publicly disclosed information through the Portuguese regulator. Furthermore, this study uses a median regression-based method to infer the authors’ conclusions.

Findings

The authors find that insiders buy (sell) at a relatively lower (higher) price when compared to other traders. This evidence shows that insiders have market timing capabilities. Moreover, this paper shows that contrarily to gender, both seniority and frequency help explain market timing performance and that insiders’ trades made over-the-counter (OTC) generally overperform the ones made on the open market (OM). Finally, this study finds a significant crisis-related influence on insiders’ market timing performance.

Originality/value

This study contributes to the literature by studying insider trading at the portfolio level, by analyzing the impact of personal characteristics of insiders (including gender, tenure and eagerness), focusing both on studying the buying and selling behavior across both OMs and OTC and analyzing firsthand the impact of a macroeconomic shift on insider trading performance.

Citation

Santos, D.D. and Gama, P. (2023), "Insiders’ characteristics and market timing capabilities: buying and selling evidence", Studies in Economics and Finance, Vol. 40 No. 2, pp. 230-248. https://doi.org/10.1108/SEF-08-2021-0315