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Bridge over ocean
1 January 2012 Financial Analysts Journal Volume 68, Issue 1

Informed Traders: Linking Legal Insider Trading and Share Repurchases

  1. Konan Chan
  2. David L. Ikenberry
  3. Inmoo Lee
  4. Yanzhi (Andrew) Wang

Logic suggests that a link might exist between insider trades and share
repurchases because of their potential to signal mispricing when market prices
deviate from fair value; both events emanate from essentially the same set of
decision makers. Using the overall repurchase sample, adding insider-trading
information is generally not helpful. For “value” buyback
companies, however, where perceived mispricing may be a more important factor,
insider trading provides a strong complement to the repurchase signal.

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