Insider Trading

A large academic and practitioner literature shows that some trades by company insiders contain information about future returns.

Quandl’s Core US Insiders Data (SHARADAR/SF2) can be used to explore these strategies

Separate routine from opportunistic insider trades

Routine traders are those trading in same month each year for 3 years

Opportunistic insider trades have more information content (esp. nonexecutive insiders from geographically concentrated, poorly governed firms)

A value-weighted portfolio focusing on opportunistic trades returns 82 bps per month

Cohen, Malloy, Pomorski (JF 2012)

Short-horizon (SH) insiders make both more unexpected and more informed trades than those of long-horizon (LH) insiders.

Investment horizon: absolute value of average annual net order flow in insider’s own-company stock over past 10 years

• close to 0: insider sometimes buys and sometimes sells
• close to 1: insider is usually buying or selling (not both)

Long-short strategy of recent strong purchases and sales of SH insiders: 2.08% abnormal monthly return

Long-short strategy of recent strong purchases and sales of LH insiders: 0.77% per month

Akbas, Jiang, and Koch (JF 2020)

CMP focuses on unexpectedness in trade timing

AJK focuses on unexpectedness in trade direction

AJK also takes trading strength into account

Trading strength = net insider purchases scaled by trading volume

• then take scaled rank in the cross-section of insiders