Investment Intelligence from Insider Trading deals with investment implications of reported insider trad-ing. The objective of the book is to determine whether outside inves-tors can improve the performance of their stock portfolios by using publicly available information about insider trading. This book can be used as a supplementary textbook in an undergraduate or graduate level finance course or a security analysis course. This book can also be used in a course on personal investing. Investors who personally manage their own stock portfolios should find the book beneficial, and to improve the readability of the book, statistical issues are de-emphasized and often relegated to footnotes.
Introduction:
The investment implications of insider trading such as are covered in this book will be extremely useful to potential stock market inves-tors. This book will:
- document the magnitude and the duration of the stock price move-ments following insider trading, determinants of insiders’ profits, and the risks associated with imitating insider trading;
- provide an active look at the likely performance of individual firms as well as the overall stock market based on most recent insider-trading patterns; and
- compare and contrast the information content of insider trading with commonly used measures of value such as the P/E and B/M ratios.
This book will help separate fact from fiction regarding insider trad-ing. For instance, a common fiction is that there wasn’t a lot of insider-trading activity in the 1980s and 1990s due to the increased regulatory penalties. Another common fiction is that while insider-trading infor-mation was very useful in the 1970s, it has much less predictive power in the 1980s and 1990s. As evidence to support their claim, critics point to the less than spectacular performance of the funds managed on the basis of actual insider trading. We will examine the time series patterns in the level and profitability of insider trading from the 1970s to the 1990s.
Most of the results in this book are based on a universal insider-trading data set that covers the period from 1975 to 1996. Care has been taken to clean the data set from reporting errors.16 While the in-sider-trading data are compiled from public sources and therefore they are not proprietary, many of the results presented in this book are new and have not been published elsewhere in the literature. This book on the information content of insider trading should be an indispensable guide for your investment decisions.
Contents:
- Insider-trading patterns
- Does insider trading predict future stock returns?
- A stock-picking strategy
- Predicting future market returns
- Crash of October 1987 and insider trading
- Dividend yields and insider trading
- Dividend initiations
- Earnings announcements
- Price-earnings ratio
- Book-to-market ratio
- Insider trading in target firms
- Insider trading in bidder firms
- Momentum and mean reversion
- Implementation and conclusions