The time period insider buying and selling refers back to the inventory transactions of the officers, administrators, and huge shareholders of a agency. Many traders consider that company insiders, knowledgeable about their companies’ prospects, purchase and promote their very own agency’s inventory at favorable occasions, reaping vital income. Given the additional prices and dangers of an energetic buying and selling technique, the important thing query for inventory market traders is whether or not the publicly accessible insider-trading data can assist them to outperform a easy passive index fund.
Basing his insights on an exhaustive knowledge set that captures data on all reported insider buying and selling in all publicly held companies over the previous twenty-one years — over a million transactions! — H. Nejat Seyhun reveals how traders can use insider data to their benefit. He paperwork the magnitude and length of the inventory worth actions following insider buying and selling, determinants of insiders’ income, and the dangers related to imitating insider buying and selling. He seems on the doubtless efficiency of particular person companies and of the general inventory market, and compares the worth of what one can study from insider buying and selling with generally used measures of worth akin to price-earnings ratio, book-to-market ratio, and dividend yield.