Corporate policies restricting trading by insiders

Strategic Trading and Trade Reporting by Corporate Insiders

“…An insider wishing to trade a large quantity could split up the order into 1 Some countries (e.g., the UK) even prohibit trading by corporate insiders in certain circumstances. Similarly, many listed firms in the US have adopted policies restricting trading by insiders (Bettis et al (2000)). …”

“…Typically, the blackout period is just prior to an earnings announcement. A common arrangement is to only allow trading within a short period after an earnings announcement (Bettis et al (2000), Roulstone (2003)). We include in our model the dummy variable "pre-announcement", which is set to one if a trade was not executed within a 30-calendar-day window after an earnings announcement, and zero otherwise.…”

“…First, Bettis et al (2000) survey 663 firms and report that the most common restriction is to only allow insiders to trade within a short window (e.g. days 3 to 12) after an earnings announcement.…”

“…Specifically, he assumes that a firm has a restriction in place when more than 75% of the insider trades occur in the 20 trading days (approximately one month) after earnings announcements are made. Since our sample is closer to Roulstone's than to the sample of firms surveyed by Bettis et al (2000) we adopt a one month period. Second, data on earnings announcement dates are missing in some cases.…”

“…First, insiders are more likely to possess relevant private information prior to an earnings announcement and therefore have an incentive to strategically delay the reporting of their trades. Second, as noted above, many firms have adopted policies that allow insider trades only in a window which is open for a specified period after the quarterly earnings announcement (Bettis et al (2000)). Insiders in these firms are more likely to trade shortly after an earnings announcement and, at the same time, are more likely to be scrutinized and may therefore tend to file their reports in time.…”