Abstract
Both short-term momentum and long-term reversal are attributable to investors underreacting to preceding insider trading information. Past winners (losers) continue to earn significant positive (negative) returns in the short term only if their insider trading activity indicates positive (negative) information. Thus, short-term momentum is attributable to investors underreacting to insider information that confirms past return. In the long term, past winners (losers) earn significant negative (positive) returns only if their insider trading activity indicates negative (positive) information. Thus, long-term reversal is attributable to investors underreacting to insider information that disconfirms past return. After controlling for insider trading information, there is no evidence of overreaction. Further, there is a clear division of labor between stocks that contribute to momentum and stocks that contribute to reversal.
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