H. Nejat Seyhun

Insiders' profits, costs of trading, and market efficiency

This study investigates the anomalous findings of the previous insider trading studies that any investor can earn abnormal profits by reading the Ofi&/ Summan/. Availability of abnormal profits to insiders, availability of abnormal profits to outsiders who imitate insiders. determinants of insiders’ predictive ability, and effect of insider trading on costs of trading for other investors are examined by using approximately 60,000 insider sale and purchase transactions from 1975 to 1981. Implications for market efficiency and evaluation of abnormal profits to active trading strategies are discussed.

The Information Content of Aggregate Insider Trading

This study investigates the information content of aggregate insider trading by analyzing ap proximately sixty thousand open-market sales and purchases by insider s from January 1975 to October 1981. The paper first examines the rel ation between market movements and aggregate insider trading. The evi dence suggests that insiders cannot always distinguish between the ef fects of firm-specific and economywide factors. The paper also invest igates whether publicly-available information about aggregate insider trading activity can help predict future stock-market returns and pr ovide market analysts with market timing ability. Copyright 1988 by the University of Chicago.

Why Does Aggregate Insider Trading Predict Future Stock Returns

This paper documents that, for the period from 1975 to 1989, the aggregate net number of open market purchases and sales by corporate insiders in their own firms predicts up to 60 percent of the variation in one-year-ahead aggregate stock returns. This study also examines whether the ability of aggregate insider trading to predict future stock returns can be attributed to changes in business conditions or movements away from fundamentals. Evidence suggests that both explanations contribute to the predictive ability of aggregate insider trading.

Do Bidder Managers Knowingly Pay Too Much for Target Firms

This study examines the stock transactions of top managers of bidder firms for their personal accounts as signals about their motivations regarding corporate takeovers. Overall, the data indicate that, prior to takeover announcements, top managers increase their net purchases rather than sales. Bidder managers purchase more shares when the stock price reaction to the takeover announcement is large and positive than when it is large and negative. Bidder managers are also more optimistic in cash offers than in equity offers. Overall, the evidence does not appear to support the hypothesis that bidder managers knowingly pay too much for target firms. Copyright 1990 by the University of Chicago.

Can Omitted Risk Factors Explain the January Effect? A Stochastic Dominance Approach

This paper provides a direct test of the hypothesis that large January returns can be attributed to omitted risk factors. Data from 1926–1991 show that the January return in the smallest decile of NYSE firms dominates the January returns for all other deciles by the first-order stochastic dominance. Similarly, January returns in all deciles (with the exception of ninth and tenth deciles) dominate non-January returns by first-, second-, or third-order stochastic dominance. The presence of stochastic dominance by January returns suggests that the omitted risk factors are not likely to explain the January effect.

Index Option Prices and Stock Market Momentum

We test the prediction of standard option pricing models that there should be no relation between option prices and past stock market movements. Using the Standard and Poors 100 index options (OEX options) prices from 19831995, we document that OEX calls are significantly overvalued relative to OEX puts after large stock price increases. The reverse is true after large stock price decreases. These valuation effects are both economically and statistically significant. Our results suggest that past stock returns exert an important influence on index option prices.

Dividends and Taxes: Evidence on Tax-Reduction Strategies

This article investigates two aspects of dividend tax avoidance not addressed by prior research. First, it examines the aggregate dividend tax savings provided to individuals through tax-exempt and tax-deferred accumulators. Using the Internal Revenue Service Individual Income Tax Model, it then proceeds to determine whether specific provisions of the Internal Revenue Code, such as the preferential treatment of capital gains, the investment-interest limitation, and the

Does Post-Earnings-Announcement Drift in Stock Prices Reflect A Market Inefficiency? A Stochastic Dominance Approach

100 dividend exclusion, affect the individuals choice of investment income. Finally, it provides a direct estimate of the average marginal tax rate on dividends that takes into account tax-favored accumulators. Copyright 1990 by the University of Chicago.

Are Women Executives Disadvantaged

This paper uses a stochastic dominance approach to test for market efficiency following earnings announcements. We find that the stocks that recently announced good earnings news stochastically dominate those that recently announced bad news. The results cast serious doubt on any belief that asset pricing model misspecifications might explain post-earnings-announcement drift.

Gender Differences in Executives’ Access to Information

We investigate gender differences in insider trading behavior of senior corporate executives in the U.S. between 1975 and 2005. We find that, on average, both female and male executives make positive profits from insider trading, but males earn about twice as much as females; males also trade more than females. All these results also hold for the sub sample of very top executives. We are able to rule out gender differences in overconfidence and risk-aversion as sole explanations for our results. The results are consistent with the view that female executives have a disadvantage relative to males in accessing inside information