Executives’ gender, prospect theory bias and insider trading

• Main Authors: SEHRISH, Saba, DING, Kuan Yong David, VISALTANACHOTI, Nuttawat
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5982
• Institution: Singapore Management University

This study provides evidence that insider trading by female executives is subject to higherbehavioural bias than male executives. Using a sample of legal insider trading from year 2000to 2016, we find that female insider trades are more likely to be affected by prospect theory.These results hold even after we divide our sample into three categories: (i) routine trades, (ii)opportunistic trades, and (iii) non-classified trades. Moreover, our study indicates that the biasis reduced significantly when female executives buy stocks of their own company. This impliesthat although female insiders’ decision making is influenced by heuristic system of thinking,however the rational brain (System 2) may override their intuitive thinking (System 1) whencritical decisions are to be made. The findings are robust to insider and firm characteristics.Our study differentiates from the existing literature on gender disparities among behaviouralbiases because we consider the setting of insider trading which is originally influenced by thedecisions of highly experienced professionals who have access to superior private informationof their firms. The findings contribute to the understanding of academics, investors,practitioners and policy makers by explaining that insider trading tends to be either more orless behaviourally biased depending upon the gender of executives.