CFOs vs. CEOs as Inside Traders

Are Chief Financial Officers (CFO) better informed than Chief Executive Officers (CEO) when it comes to trading the stocks of their companies? In their March 2011 paper entitled “Are CFOs’ Trades More Informative than CEOs’ Trades?”, Weimin Wang, Yong-Chul Shin and Bill Francis investigate whether open market trades made by CFOs are better predictors of associated stock returns than trades made by CEOs. They examine insider purchases and sales separately instead of using net sales and focus on purchases to avoid non-informative liquidity sales. They calculate abnormal returns relative to 100 benchmark portfolios matched by market capitalization (size) and book-to-market ratio. Using data for 12,936 CEO and 7,049 CFO purchases and 24,527 CEO and 13,909 CFO sales of shares in their companies during January 1992 through July 2002, along with subsequent daily stock returns, benchmark portfolio returns and risk factor data, they find that: (more…)