Keeping up with the Forbeses: Does Peer Recognition Promote Opportunistic Trading?

Abstract

We find that following the debut of one of their peers on the Forbes 400 list of wealthiest Americans, corporate insiders start trading more aggressively as measured by the profitability, frequency, and size of their trades. The peer effect is long-lived and continues for at least 3 years following the inclusion event. Insiders’ reaction is stronger when the debutant appears higher on the Forbes list and becomes insignificant when the debutant drops out of the list the following year. Peer recognition exhibits stronger effect on corporate insiders when exposed insiders and the Forbes insider share the same ethnicity. Finally, insiders with fewer professional awards and recognitions react more strongly to their peer’s success.