CFOs Still the Best Inside Traders?
Posted in Investing Expertise
September 11, 2012
“CFOs vs. CEOs as Inside Traders” describes research finding that, based on data from before the Sarbanes-Oxley Act (SOX), investors should assume that Chief Financial Officers (CFO) are better inside traders than Chief Executive Officers (CEO). Does this finding hold after SOX? In the August 2012 update of their paper entitled “CEOs, CFOs, and COOs: Why Are Certain Insiders’ Trades More Informative?”, Heather Knewtson and John Nofsinger examine insider trading performance of CEOs, CFOs and Chief Operating Officers (COO) spanning SOX implementation. They measure trading performance based on 50-day future returns for overlapping portfolios formed daily to capture executive stock purchases (more informative than sales) unique to category (the other two categories not trading that day) within the past 50 days. They consider both equal and dollar value weightings of qualifying trades. They estimate trading alpha based on a four-factor (market, size, book-to-market, momentum) model of stock returns. They consider subsamples based on pre-SOX versus post-SOX, and CEOs with and without experience as CFO. Using executive trading disclosures, contemporaneous returns for associated stocks and risk factor data during 1992 through 2009, they find that: (more…)