Some Insiders Are Indeed Smart Investors

Not all insiders are the same; some are more effective than others in processing the information they have access to, and invest their own wealth accordingly.

Author(s):

Daniel Giamouridis

Research Associate, EDHEC Risk and Asset Management Research Centre

Manolis Liodakis

Managing Director & Head of Quantitative Equity Research,European Quantitative Equity Research, Citigroup

Andrew Moniz

Vice President, European Quantitative Equity Research, CitigroupInvestment Research

We used a database with transactions from the U.K. market to identify insiders with superior market timing abilities. For the period 1994 to 2006 we showed that informative insider trades can be identified ex ante through certain characteristics of the transactions and the firm itself. Moreover, we showed how outsiders could benefit from this information. We created a long-only portfolio strategy that generated an economically and statistically significant return. In addition, we showed that the insider transactions' signal can be used to construct a satellite strategy that enhances the returns of a typical quant investment portfolio.

Type: Working paper
Date: le 01/07/2008
Research Cluster : Finance

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