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Opportunism, overconfidence and irrationality: A puzzling triad

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  • Altanlar, Ali
  • Amini, Shima
  • Holmes, Phil
  • Eshraghi, Arman

Abstract

We empirically investigate managerial decision-making in a corporate context with combinations of rational/irrational managers and investors. There are noticeable differences in insider trading among these groups, particularly when exposed to market-wide and firm-level sentiment. We find that investor sentiment in the presence of managerial overconfidence has a significant impact on insider trading. We also show that managers behave opportunistically when timing stock splits and undertaking insider trading. Our findings linking splits to insider trading is robust under various specifications. In cases where irrational managers coexist with irrational investors, our study demonstrates important implications for the firms involved.

Suggested Citation

  • Altanlar, Ali & Amini, Shima & Holmes, Phil & Eshraghi, Arman, 2023. "Opportunism, overconfidence and irrationality: A puzzling triad," International Review of Financial Analysis, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finana:v:88:y:2023:i:c:s105752192300159x
    DOI: 10.1016/j.irfa.2023.102643
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    More about this item

    Keywords

    Overconfidence; Irrationality; Insider trading; Sentiment; Stock split;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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