The Maturity Structure Of Term Premia With Time Varying Expected Returns Mark A Hooker

Author : John Scott Jordan
Publisher :
ISBN 13 :
Total Pages : 60 pages
Book Rating : 4.3/5 (91 download)

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Download or read book Managers' Opportunistic Trading of Their Firm's Shares written by John Scott Jordan and published by . This book was released on 1997 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Providing managers with stock in the firm may help ensure that managers act in the shareholders' interest. The level of managerial stock ownership, however, is not generally controlled by the firm's compensation committee. Rather, managers themselves determine the level of their stock holdings. To date, though, little evidence exists on managers' personal transactions and how these trades affect their overall equity holdings. This analysis provides insight on the trading practices of bank managers. I find that managers do not rely solely on the actions of a compensation committee to set their stock holdings. The assumption that managerial stock holdings are determined solely by the firm's compensation committee is shown to be inaccurate. I provide evidence that managerial open market purchases and sales are both primary determinants of the level of managerial stock holdings. I also show that managers alter their holdings in an opportunistic manner. In general, managers alter their stock holdings when their firm's prospects change. Managers consistently take advantage of private firm-specific information, earning positive abnormal returns on open market purchases while avoiding negative abnormal returns by making open market sales. Evidence suggests that opportunistic trading is most prevalent among managers who face the greatest exposure to their firm's nonsystematic risk. In general, managers appear to "fine tune" the proportion of their wealth that is sensitive to changes in firm value. In effect, this trading increases the rate of return and reduces the riskiness o.