Author Description

Corporate executives are prohibited from trading on material nonpublic information. In 2000, the SEC enacted Rule 10b5-1, which allows insiders to preplan their transactions before being aware of material nonpublic information. However, do corporate executives subsequently influence the timing and content of information disclosure to benefit their preplanned trades? We examine cumulative abnormal returns (CARs) around insider transactions and document patterns suggesting that insiders are "perfect" timers. That is, stock prices go up (go down) prior to but drop (back up) after insider sells (buys). Further classifying insider trades into preplanned (routine) trades and non-preplanned (opportunistic) trades, we show that the stock return patterns hold not only for non-preplanned (opportunistic) trades but also for preplanned (routine) trades. Using 8-K filings as a proxy of corporate discretionary disclosure, we find that there are significantly more 8-K filings prior to insider trades than during normal times. Moreover, based on the sentiment score from RavenPack News Analytics, we find that analyst reports and corporate news releases both have significant explanatory power of stock returns around insider transactions. The evidence documented in our study cannot rule out the hypothesis that corporate executives influence the timing and content of information disclosure to benefit their preplanned trades. In the second part of my dissertation, we investigate in insider trading's implications on stock returns. The literature posits that insiders are contrarian, i.e., buy stocks when they are under-valued and sell stocks when they are over-valued. In addition, insider transactions contain information about future firm fundamentals. As such, insider trading helps improve stock price efficiency and promote stock price discovery. In this study, we test the implications of both hypotheses. First, we follow the literature and identify undervalued and overvalued stocks and e