Description:
Previous studies concluded that investors suffer from the 52-week high/low anchoring biases. We expand this evidence to corporate insiders, the conventionally viewed as informed traders. We find that they systematically trade profitably at these price extremes by exploiting anchoring biases of uninformed investors. A long-short strategy based on a portfolio built on the top decile 52-week high (low) recency of their transactions generates annual abnormal returns of approximately 31%. We identify the characteristics of the most sophisticated insiders that time their trades, including during Covid-19, exploit investors’ biases, and undertake opportunistic trades and dissimulation strategies to conceal their informational advantage. We show that their trading strategies depend on their gender, organizational position, and investment horizons, and their profitability emanates from announcement-based, rather than accounting-based information, suggesting that they may endogenously release biased news regarding their firm’s prospect to alter stock prices and gain from their trades