La Trobe

Insider trading and climate disasters

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journal contribution
posted on 2024-09-10, 01:29 authored by Rui MaRui Ma, BR Marshall, HT Nguyen, NH Nguyen, N Visaltanachoti
Climate disasters are increasing in frequency and severity. While a large body of research has shown that extreme climate affects various economic decisions, how climate events influence investment decisions remains largely under-investigated. This paper examines whether, and to what extent, climate disasters influence insider transactions, which are important investment decisions that attract increasing attention from both corporate management and policymakers. We find that the monthly value of insider trades increases markedly in firms headquartered in counties with a climate disaster. Climate-induced insider trading holds in general but is stronger when investors are distracted and less prevalent when insiders face higher litigation risk. Climate disasters trigger uncertainty about short-term firm fundamentals, and insiders benefit by selling prior to this being priced. Insiders living in disaster counties do not trade more than those in unaffected counties, which does not support a personal liquidity motivation. Our paper documents a new way through which climate impacts investor behavior and financial markets.

History

Publication Date

2024-09-01

Journal

Global Finance Journal

Volume

62

Article Number

101024

Pagination

23p.

Publisher

Elsevier

ISSN

1044-0283

Rights Statement

© 2024 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license(http://creativecommons.org/licenses/by-nc-nd/4.0/).