What Motivates CEO and CFO Trading – Contrarian Beliefs or Superior Information?

In this paper we investigate whether trading by CEOs and CFOs is motivated by contrarian beliefs or superior information about future cash flow realizations. We find that even though both CEOs and CFOs earn significant abnormal returns following their trades, CFO trades are associated with higher abnormal returns than CEO trades. Initial analysis suggests that these abnormal returns are related to both contrarian beliefs and superior information about future cash flow realizations. However, when we analyze the trading behavior in terms of routine trading and opportunistic trading, we find that both CEOs and CFOs earn abnormal returns from opportunistic trading and these trades are motivated solely by contrarian beliefs.