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Behavioral biases of informed traders: Evidence from insider trading on the 52-week high

Author

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  • Lee, Eunju
  • Piqueira, Natalia

Abstract

We provide evidence on anchoring biases in insider trading using a stock’s 52-week high. When stock prices are close to their 52-week highs, insiders are reluctant to purchase stocks and willing to sell them. Similarly, when stock prices are far from the 52-week highs, they are willing to buy stocks instead of selling them. This anchoring behavior is robust to controlling for insiders’ contrarian strategy, firm characteristics, and trading ranges. We find that these biased insider trades are not able to predict future returns or may lead to losses to investors who follow such insider trading. Our findings suggest that insiders are prone to behavioral biases, notwithstanding their access to private information.

Suggested Citation

  • Lee, Eunju & Piqueira, Natalia, 2019. "Behavioral biases of informed traders: Evidence from insider trading on the 52-week high," Journal of Empirical Finance, Elsevier, vol. 52(C), pages 56-75.
    • Handle: RePEc:eee:empfin:v:52:y:2019:i:c:p:56-75
    DOI: 10.1016/j.jempfin.2019.02.007
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    Citations

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    Cited by:

    1. Chu, Chien Chi & Chang, Chiao Yi & Zhou, Rui Jie, 2021. "The nonlinear connection between 52-week high and announcement effect of insider trading — Evidence from mainland China and Taiwan," Economic Modelling, Elsevier, vol. 94(C), pages 1043-1057.
    2. Meziane Lasfer & Xiaoke Ye, 2024. "Corporate insiders’ exploitation of investors’ anchoring bias at the 52‐week high and low," The Financial Review, Eastern Finance Association, vol. 59(2), pages 391-432, May.
    3. Li-Chuan Liao & Tzu-Pu Chang & Ping-Huang Wang, 2023. "Earnings Management Ethicality and Application in the Kenyan Public Sector: A Critical Review," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 16(1), pages 71-86, October.
    4. Wang, Kemin & Zhang, Guanglong & Zhou, Lin, 2023. "Managerial disposition effect: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    5. Wang, Zi-Mei & Lien, Donald, 2023. "Limited attention, salient anchor, and the modified MAX effect: Evidence from Taiwan’s stock market," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    6. Riya Arora & Madhumathi Rajendran, 2023. "Moored Minds: An Experimental Insight into the Impact of the Anchoring and Disposition Effect on Portfolio Performance," JRFM, MDPI, vol. 16(8), pages 1-22, July.
    7. Thiago Christiano Silva & Benjamin Miranda Tabak & Idamar Magalhães Ferreira, 2019. "Modeling Investor Behavior Using Machine Learning: Mean-Reversion and Momentum Trading Strategies," Complexity, Hindawi, vol. 2019, pages 1-14, December.
    8. Neupane, Biwesh & Thapa, Chandra & Marshall, Andrew & Neupane, Suman, 2021. "Mimicking insider trades," Journal of Corporate Finance, Elsevier, vol. 68(C).

    More about this item

    Keywords

    Insider trading; 52-week high; Anchoring bias; Opportunistic insiders;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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