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Startling Numbers of Insider Trading Rogues

Today a prominent news outlet disclosed that “A quarter of all public company deals may involve some kind of insider trading, according to the study by two professors at the Stern School of Business at New York University and one professor from McGill University. The study, perhaps the most detailed and exhaustive of its kind, examined hundreds of transactions from 1996 through the end of 2012.”

The study finds “pervasive directional options activity, consistent with strategies that would yield abnormal returns to investors with private information”

S&P Capital IQ examined legal corporate insider trading and found that investors can legally benefit from taking note of when corporate insiders make cash purchases of their own stock.   In a study entitled: “Informative Insider trading: The Hidden Profits in Corporate Insider Filings” we found:

  • Outside investors can earn economically significant excess return of 68 bps a week by trading on “informative” insider trading signals.
  • Mimicking the net purchase actions of CEOs yielded an excess return of 1.27% over the next one week.
  • A trading strategy based on the three characteristics: opportunistic, intensive and directional change, yielded 0.36% weekly excess returns after transaction costs.
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