(Jaffe 1974;Seyhun 1986 Seyhun , 1998Rozeff and Zaman 1988;Lin and Howe 1990;Lakonishok and Lee 2001).Studies of managerial decisions also suggest that managers are better informed than outside investors about their companies' prospects. For example, Ikenberry, Lakonishok, and Vermaelen (1995) found that corporate share repurchases predict high future returns, and Loughran and Ritter (1995) reported poor returns following new equity issues.Studies on insider trading that investigated whether outside investors can profit by mimicking insider trades reached differing conclusions. Seyhun (1986) and Rozeff and Zaman (1988) showed that after transaction costs are taken into account, imitating insiders produces no abnormal profit. Bettis, Vickrey, and Vickrey (1997), however, found that outsiders can earn abnormal profits after transaction costs by imitating high-ranking insiders who make large-volume trades.Our study concentrates on the information content of insider trades rather than direct applicability of the findings. For example, we do not address transaction costs for several practical and, we believe, important reasons. First, trading costs change over time as markets evolve, and at any time, different managers have different trading costs, so it is hard to know what level of cost is relevant. As of this writing, some managers can trade for less than 10 bps but others are paying more than 100 bps. More importantly, from the point of view of many professional investment managers, whether a strategy can or cannot cover transaction costs is seldom the issue in decision making. Most active managers use multiple information signals to make buy and sell decisions, so any signal with information content may be useful. In a practical application, the degree to which one signal is correlated with another is often more important than the signal itself. A redundant signal is not useful, whereas an independent, even if weak, signal can provide a competitive advantage. Finally, from the perspective of how markets actually function, and given that managers use multiple signals, the existence of any persistent and statistically significant anomaly is useful because it raises questions about market efficiency.Most studies show an asymmetry in the prediction of subsequent stock performance between insider sales and insider purchases. Insider purchases are typically associated with positive future abnormal returns, whereas insider sales tend to predict smaller, sometimes insignificant, future abnormal returns. For example, Lakonishok and Lee found in their sample that stocks that experienced net buying by company managers earned an abnormal return of 2.0 percent in the following year but stocks that experienced net selling had an abnormal return of only -0.1 percent in the same interval.The asymmetry between insider purchases and sales reflects differences in the information content of these actions. When an insider purchases company shares, the primary reason is to make

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We examine the consequences of behavioral biases in the context of valuation theory. Although the biases we consider have been well documented elsewhere, the framework we provide is new. It not only allows a rationalization of previous findings, but it also makes possible identification of the types of stocks for which specific biases will be strongest. We provide empirical evidence concerning the ability of an array of commonly used active investment strategies, such as value and growth tilts, to exploit biases. We also use the framework to test the relative importance of prospect theory and the overconfidence hypothesis as justification for momentum investing.

Using 45 Initial Public Offerings (IPOs) on the Shanghai Stock Exchange in 1993, we find that the average initial period return is 594 percent or 2.44 percent per day between the offer date and the listing date. Our results support the political persuasion hypothesis that has been postulated in previous studies on IPOs in other emerging markets. An IPO in China is also a newly privatized firm. Based on a subset of the IPO sample, we find significant increases in profitability and productivity after privatization. But the improvement in performance is not strongly related to the percentage of total shares retained or controlled by the government.