Publicly traded homebuilders’ and insiders’ trading

a new perspective

Research output: Contribution to journalArticle

Abstract

Purpose – The purpose of this paper is to examine the insiders’ activities (buy/sell) during the recent meltdown of the homebuilders’ industry. Design/methodology/approach – This study applies a regression model to analyze the relationship between the insiders’ net sales and variables that could be affecting the trading decisions controlling for other market variables. Findings – The results show that CEOs of homebuilding companies had net positive selling activities and enjoyed massive gains by timing the market correctly. The insiders’ massive selling period was followed by significant declines in share prices of homebuilding companies. More specifically, CEOs (but not all top executives) acted as contrarian investors and sold when the share prices hit a record high, coupled by optimistic analysts’ recommendations, which were later seen as incorrect by the market. Also, CEOs sold at a time when EPS was at its highest level. Research limitations/implications – The current work can not disprove the “argument of diversification” cited by insiders as the reason for their stock sell off, mainly because it is not possible to obtain data about the CEOs’ personal portfolios. Practical implications – This paper implies that CEOs were able to time the market by forecasting the trend in their industry. Originality/value – The paper investigates the period between January 2004 and August 2007 which is characterized by mass selling by CEOs in the whole industry of home building companies and not only a specific entity.

Original languageEnglish (US)
Pages (from-to)803-821
Number of pages19
JournalManagerial Finance
Volume35
Issue number9
DOIs
StatePublished - Jul 31 2009

Fingerprint

Insider trading
Chief executive officer
Insider
Industry
Share prices
Design methodology
Diversification
Regression model
Investors
Analyst recommendations

All Science Journal Classification (ASJC) codes

  • Finance
  • Strategy and Management

Cite this

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abstract = "Purpose – The purpose of this paper is to examine the insiders’ activities (buy/sell) during the recent meltdown of the homebuilders’ industry. Design/methodology/approach – This study applies a regression model to analyze the relationship between the insiders’ net sales and variables that could be affecting the trading decisions controlling for other market variables. Findings – The results show that CEOs of homebuilding companies had net positive selling activities and enjoyed massive gains by timing the market correctly. The insiders’ massive selling period was followed by significant declines in share prices of homebuilding companies. More specifically, CEOs (but not all top executives) acted as contrarian investors and sold when the share prices hit a record high, coupled by optimistic analysts’ recommendations, which were later seen as incorrect by the market. Also, CEOs sold at a time when EPS was at its highest level. Research limitations/implications – The current work can not disprove the “argument of diversification” cited by insiders as the reason for their stock sell off, mainly because it is not possible to obtain data about the CEOs’ personal portfolios. Practical implications – This paper implies that CEOs were able to time the market by forecasting the trend in their industry. Originality/value – The paper investigates the period between January 2004 and August 2007 which is characterized by mass selling by CEOs in the whole industry of home building companies and not only a specific entity.",
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Publicly traded homebuilders’ and insiders’ trading : a new perspective. / Ghosh, Sudip; Abdou, Khaled Khalil.

In: Managerial Finance, Vol. 35, No. 9, 31.07.2009, p. 803-821.

Research output: Contribution to journalArticle

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