Download or read book Do Insiders Trade on Mispricing After Earnings Announcements? written by Jana P. Fidrmuc and published by . This book was released on 2016 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper conjectures that insiders exploit their stock's mispricing after earnings announcements to make profitable trades. We design two sets of tests to provide evidence of insider trading on mispricing of their stock. First, insiders' purchases and sales are profitable both after positive and negative earnings surprises, which indicates that their trading strategies are superior to simple contrarian or momentum trading strategies. Second, we estimate a model of 'normal' market reaction to an earnings announcement and use the deviation of the fitted value from the realized market reaction as our measure of mispricing after earnings announcements. In line with the mispricing hypothesis, we show that insiders sell (buy) more often after large positive (negative) values of our mispricing measure and earn significant post trading returns.