solely based on public information.
3.2 Robustness Checks
We employ several robustness checks to test the stability of our results. The
empirical results for all of these robustness checks can be found in Table 4.
+ + + Please insert TABLE 4 about here + + +
3.2.1 Difference Portfolios
Instead of looking at long-only portfolios, we now examine a strategy of going
long in managerial ownership portfolios and at the same time short in non-
managerial ownership portfolios. Thus, we re-estimate Model (1), where we
set Rb,t equal to the return of a value-weighted non-managerial ownership
portfolio. Although the results for the long-only strategy presented above
are already significant, we examine difference portfolios because this is a
standard approach in empirical asset pricing, allowing us to test the stability
of our results and to relate them to comparable studies also using long-short
portfolios. Results are presented in Panel A of Table 4.
They confirm our results for the long-only portfolios. Going long in the
5% cutoff (10% cutoff) portfolio and short in the non-managerial ownership
portfolio delivers abnormal annual returns of 7.81% (11.31%) that are statis-
tically significant at the 5% (1%) level. The extent of the abnormal returns
is very similar to that of the long-only strategies. This shows that investors
who are not allowed to short-sell could also fully profit from the abnormal
returns of managerial ownership firms in the past.
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