When the stock price is far from its anchor level, stocks have more positive returns following insider purchases and more negative returns following insider sales. The study’s main contribution was to demonstrate when insider trades are most informative. However, insiders also possess private information about their firms, which allows them to mitigate anchoring bias. Their findings led Li, Wang, Yan and Zhang to conclude that the popular conventional wisdom of buying low and selling high makes investors, including insiders, easily subject to the anchoring bias.
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