Three Essays on the Behavior of Financial Market Participants

Download or read book Three Essays on the Behavior of Financial Market Participants written by Andrea Rossi (Ph. D. in finance) and published by . This book was released on 2018 with total page 187 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the third chapter, coauthored with Itzhak Ben-David and Justin Birru, we study whether industry familiarity is an advantage in stock trading by exploring the trading patterns of industry insiders in their own personal portfolios. To do so, we identify accounts of industry insiders in a large data set provided by a retail discount broker. We find that insiders trade firms from their own industry more frequently. Furthermore, they earn abnormal returns exclusively when trading own-industry stocks, especially obscure stocks (small, low analyst coverage, high volatility). In a battery of tests, we find no evidence of the use of private information. The results are most consistent with the interpretation that industry familiarity is an advantage in stock trading.