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{{Multiple issues|
{{Orphan|date=August 2014}}
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{{Too few opinions|date=May 2022}}
{{Unreliable sources|date=May 2022}}
}}
The '''insider investment strategy''' is an [[investment strategy]] that follows the buying and selling decisions of so-called "[[insider trading|insiders]]" in a stock market. The primary insiders have an advantage because they have access to more information about issues that could affect the current and future value of stock, which is known as an "information advantage." However, in the world there are only a few [[investment fund]]s that follow the insider trades, both of them were established in 2011.


The '''insider investment strategy''' is an [[investment strategy]] that follows the buying and selling decisions of [[insider trading|insiders]]. The primary insiders have information advantage and the proven theory is that they as a group over time will do better than the average [[investor]] on the [[Stock exchange|Stock Exchange]]. However, in the world there are only a few [[investment fund]]s that follow the insider trades, both of them were established in 2011. In [[United States|America]] Catalyst Capital Advisors LLC <ref>{{cite web | url = http://catalystMF.com | title = America Catalyst Capital Advisors | publisher = America Catalyst Capital Advisors}}</ref> manages <ref>{{cite web | url = http://catalystmf.com/i/u/6149790/f/INSAX_Investor_Presentation_2014-08.pdf | title = America Catalyst Capital Advisors | publisher = America Catalyst Capital Advisors | access-date = 2014-08-24 | archive-url = https://web.archive.org/web/20160304025629/http://catalystmf.com/i/u/6149790/f/INSAX_Investor_Presentation_2014-08.pdf | archive-date = 2016-03-04 | url-status = dead }}</ref> Catalyst Insider Buying Fund. This fund is a large-cap, long-only equity fund that only invests in companies where corporate insiders are buying their own company's stock on the open market. In [[Europe]] Dovre Forvaltning UAB <ref>{{cite web | url = https://www.dovreforvaltning.com/en/content/about-us | title = Dovre Forvaltning | publisher = Dovre Forvaltning| date = 2014-03-21 }}</ref> manages Dovre Inside Nordic fund.<ref>{{cite web | url = https://www.dovreforvaltning.com/en/din | title = Fund Facts: Dovre Inside Nordic | publisher = Dovre Forvaltning}}</ref> This fund is a Nordic [[Stock fund|equity fund]], which strategy is to follow the primary insiders in listed companies and/or shareholders with assumed close relationship to company, board and management.
In the United States, Catalyst Capital Advisors LLC <ref>{{cite web | url = http://catalystMF.com | title = America Catalyst Capital Advisors | publisher = America Catalyst Capital Advisors}}</ref> manages <ref>{{cite web | url = http://catalystmf.com/i/u/6149790/f/INSAX_Investor_Presentation_2014-08.pdf | title = America Catalyst Capital Advisors | publisher = America Catalyst Capital Advisors | access-date = 2014-08-24 | archive-url = https://web.archive.org/web/20160304025629/http://catalystmf.com/i/u/6149790/f/INSAX_Investor_Presentation_2014-08.pdf | archive-date = 2016-03-04 | url-status = dead }}</ref> Catalyst Insider Buying Fund. This fund is a large-cap, long-only [[equity fund]] that only invests in companies where corporate insiders are buying their own company's stock on the open market. In Europe, Dovre Forvaltning UAB <ref>{{cite web | url = https://www.dovreforvaltning.com/en/content/about-us | title = Dovre Forvaltning | publisher = Dovre Forvaltning| date = 2014-03-21 }}</ref> manages Dovre Inside Nordic fund.<ref>{{cite web | url = https://www.dovreforvaltning.com/en/din | title = Fund Facts: Dovre Inside Nordic | publisher = Dovre Forvaltning}}</ref>


==Effectiveness==
==Insider trading studies==
⚫
A Lorie-Niederhoffer study indicates that proper and prompt analysis of data on insider trading can be profitable.

⚫
In 2014, Dovre Forvaltning shared his analysis on Insider Influence in the Nordic Region.<ref>{{cite web | url = https://www.dovreforvaltning.com/sites/default/files/public/docs/2014-10-30%20Insider%20Study.pdf | title = Dovre Insider Study | publisher = Dovre Forvaltning}}</ref> The company analyzed these different yearly portfolios (both for Purchases and Sales):<ref>{{cite web | url = https://www.dovreforvaltning.com/sites/default/files/public/docs/2014-10-30%20Insider%20Study.pdf | title = Dovre Insider Study | publisher = Dovre Forvaltning}}</ref>
⚫
* Had an insider Purchases in the past 1/3/6 months.
⚫
* Had only insider Purchases in the past 1/3/6 months.
⚫
* Last insider Transaction in the past 1/3/6 months was an insider Purchase.
⚫
* Had an insider Sales in the past 1/3/6 months.
⚫
* Had only insider Sales in the past 1/3/6 months.
⚫
* Last insider Transaction in the past 1/3/6 months was an insider Sale.

⚫
Only transactions above 80.000 [[Swedish Krona|SEK]] were included (33% of all insider trades were excluded because they were too small). If there were no Purchases/Sales in 1,3,6 months after a company's inclusion, it was excluded from the portfolio. All stocks are equally weighted. The analysis <ref>{{cite web | url = https://www.dovreforvaltning.com/sites/default/files/public/docs/2014-10-30%20Insider%20Study.pdf | title = Dovre Insider Study| publisher = Dovre Forvaltning}}</ref> showed that:

⚫
* Highest out performance was in [[Small-cap stocks|Small Caps]] insider Purchase portfolios. Smaller in [[Mid cap|Mid Caps]] Purchase portfolios. And smallest in Large Caps insider Purchase portfolios.
⚫
* 'Insider effect' fades away with longer holding horizon.
⚫
* Sell signals are stronger than [[Buy signal]]s.
⚫
* Sell signals are the strongest when more than 50% of holdings are sold.
⚫
* Buy signals are the strongest when signal transaction value is <80.000 SEK.

==Studies of insider trading==
{| class="wikitable"
{| class="wikitable"
|-
|-
Line 17: Line 40:
| 1976 || Joseph E. Finnerty|| Insiders and Market Efficiency <ref>{{cite web | url = http://deepblue.lib.umich.edu/bitstream/handle/2027.42/35608/b1372415.0001.001.pdf?sequence=2| title =The Value of Information: Inferences from the Profitability of Insider Trading| publisher = Jerome B. Baesel, Garry R. Stein }}</ref>
| 1976 || Joseph E. Finnerty|| Insiders and Market Efficiency <ref>{{cite web | url = http://deepblue.lib.umich.edu/bitstream/handle/2027.42/35608/b1372415.0001.001.pdf?sequence=2| title =The Value of Information: Inferences from the Profitability of Insider Trading| publisher = Jerome B. Baesel, Garry R. Stein }}</ref>
|-
|-
| 1979 || Jerome B. Baesel, Garry R. Stein || The Value of Information: Inferences from the Profitability of Insider Trading <ref>{{cite journal | title =The Value of Information: Inferences from the Profitability of Insider Trading| journal = The Journal of Financial and Quantitative Analysis | volume = 14 | issue = 3 | pages = 553–571 |jstor = 2330188|last1 = Baesel|first1 = Jerome B.| last2 = Stein | first2 = Garry R. | year = 1979 | doi = 10.2307/2330188 }}</ref>
| 1979 || Jerome B. Baesel, Garry R. Stein || The Value of Information: Inferences from the Profitability of Insider Trading <ref>{{cite journal | title =The Value of Information: Inferences from the Profitability of Insider Trading| journal = The Journal of Financial and Quantitative Analysis | volume = 14 | issue = 3 | pages = 553–571 |jstor = 2330188|last1 = Baesel|first1 = Jerome B.| last2 = Stein | first2 = Garry R. | year = 1979 | doi = 10.2307/2330188 | s2cid = 154470151 }}</ref>
|-
|-
| 1985|| Dan Givoly, Dan Palmon|| Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence <ref>{{cite journal | title = Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence|journal = The Journal of Business|volume = 58|issue = 1|pages = 69–87| author = Dan Givoly, Dan Palmon |jstor = 2352910|year = 1985|doi = 10.1086/296283}}</ref>
| 1985|| Dan Givoly, Dan Palmon|| Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence <ref>{{cite journal | title = Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence|journal = The Journal of Business|volume = 58|issue = 1|pages = 69–87| author = Dan Givoly, Dan Palmon |jstor = 2352910|year = 1985|doi = 10.1086/296283}}</ref>
Line 27: Line 50:
| 2002 || Sylvian Friederich, Alan Gregory, John Matatko, Ian Tonks || Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange <ref>{{cite web | url = http://people.exeter.ac.uk/ipt201/research/dirtradefinal3_EFM2002.pdf | title = The Profitability of Insider Trades in the Dutch Stock Market| publisher = Sylvian Friederich, Alan Gregory, John Matatko, Ian Tonks}}</ref>
| 2002 || Sylvian Friederich, Alan Gregory, John Matatko, Ian Tonks || Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange <ref>{{cite web | url = http://people.exeter.ac.uk/ipt201/research/dirtradefinal3_EFM2002.pdf | title = The Profitability of Insider Trades in the Dutch Stock Market| publisher = Sylvian Friederich, Alan Gregory, John Matatko, Ian Tonks}}</ref>
|-
|-
| 2003 || Mathijs A. Biesta, Ronald Q. Doeswijk, Han A. Donker|| The Profitability of Insider Trades in the Dutch Stock Market <ref>{{cite web | ssrn = 498042 | title = The Profitability of Insider Trades in the Dutch Stock Market| publisher = Mathijs A. Biesta, Ronald Q. Doeswijk, Han A. Donker| date = September 2003}}</ref>
| 2003 || Mathijs A. Biesta, Ronald Q. Doeswijk, Han A. Donker|| The Profitability of Insider Trades in the Dutch Stock Market <ref>{{cite web | ssrn = 498042 | title = The Profitability of Insider Trades in the Dutch Stock Market| publisher = Mathijs A. Biesta, Ronald Q. Doeswijk, Han A. Donker| date = September 2003 | url=https://cfavba.nl/uploads/2003/Winter%202003/02/02.pdf}}</ref>
|-
|-
| 2006 || Emanuele Bajo, Barbara Petracci || Do what insiders do: Abnormal performances after the release of insiders' relevant transactions<ref>{{cite web | url = http://www.mate.polimi.it/qfinlab/document/paperinsider.pdf | title = Do what insiders do: Abnormal performances after the release of insiders' relevant transactions | publisher = Emanuele Bajo, Barbara Petracci}}</ref>
| 2006 || Emanuele Bajo, Barbara Petracci || Do what insiders do: Abnormal performances after the release of insiders' relevant transactions<ref>{{cite web | url = http://www.mate.polimi.it/qfinlab/document/paperinsider.pdf | title = Do what insiders do: Abnormal performances after the release of insiders' relevant transactions | publisher = Emanuele Bajo, Barbara Petracci}}</ref>
|}
|}

⚫
A Lorie-Niederhoffer study indicates that proper and prompt analysis of data on insider trading can be profitable.

Glass examines 14 different calendar months and selects the eight securities with the greatest excess of buyers to sellers among insiders within a month. He finds that the average return on these securities is 10 percent above the return on the stock market as a whole in the 7 months following the individual months of intensive buying.

⚫
In 2014 Dovre Forvaltning shared there analysis on insiders influence in the Nordic region.<ref>{{cite web | url = https://www.dovreforvaltning.com/sites/default/files/public/docs/2014-10-30%20Insider%20Study.pdf | title = Dovre Insider Study | publisher = Dovre Forvaltning}}</ref> The company analyzed these different yearly portfolios (both for Purchases and Sales):<ref>{{cite web | url = https://www.dovreforvaltning.com/sites/default/files/public/docs/2014-10-30%20Insider%20Study.pdf | title = Dovre Insider Study | publisher = Dovre Forvaltning}}</ref>
⚫
* Had an insider Purchases in the past 1/3/6 months.
⚫
* Had only insider Purchases in the past 1/3/6 months.
⚫
* Last insider transaction in the past 1/3/6 months was an insider Purchase.
⚫
* Had an insider Sales in the past 1/3/6 months.
⚫
* Had only insider Sales in the past 1/3/6 months.
⚫
* Last insider transaction in the past 1/3/6 months was an insider Sale.

⚫
Only transactions above 80.000 [[Swedish Krona|SEK]] were included (33% of all insider trades were excluded because they were too small). If there were no Purchases/Sales in 1,3,6 months after a company's inclusion, it was excluded from the portfolio. All stocks are equally weighted. The analysis <ref>{{cite web | url = https://www.dovreforvaltning.com/sites/default/files/public/docs/2014-10-30%20Insider%20Study.pdf | title = Dovre Insider Study| publisher = Dovre Forvaltning}}</ref> showed that:

⚫
* Highest out performance is in Small Caps insider Purchase portfolios. Smaller in Mid Caps Purchase portfolios. And smallest in Large Caps insider Purchase portfolios.
⚫
* 'Insider effect' fades away with longer holding horizon.
⚫
* Sell signals are stronger than Buy signals.
⚫
* Sell signals are the strongest when more than 50% of holdings are sold.
⚫
* Buy signals are the strongest when signal transaction value is <80.000 SEK.


==References==
==References==

Revision as of 23:07, 14 July 2024

The insider investment strategy is an investment strategy that follows the buying and selling decisions of so-called "insiders" in a stock market. The primary insiders have an advantage because they have access to more information about issues that could affect the current and future value of stock, which is known as an "information advantage." However, in the world there are only a few investment funds that follow the insider trades, both of them were established in 2011.

In the United States, Catalyst Capital Advisors LLC [1] manages [2] Catalyst Insider Buying Fund. This fund is a large-cap, long-only equity fund that only invests in companies where corporate insiders are buying their own company's stock on the open market. In Europe, Dovre Forvaltning UAB [3] manages Dovre Inside Nordic fund.[4]

Effectiveness

A Lorie-Niederhoffer study indicates that proper and prompt analysis of data on insider trading can be profitable.

In 2014, Dovre Forvaltning shared his analysis on Insider Influence in the Nordic Region.[5] The company analyzed these different yearly portfolios (both for Purchases and Sales):[6]

  • Had an insider Purchases in the past 1/3/6 months.
  • Had only insider Purchases in the past 1/3/6 months.
  • Last insider Transaction in the past 1/3/6 months was an insider Purchase.
  • Had an insider Sales in the past 1/3/6 months.
  • Had only insider Sales in the past 1/3/6 months.
  • Last insider Transaction in the past 1/3/6 months was an insider Sale.

Only transactions above 80.000 SEK were included (33% of all insider trades were excluded because they were too small). If there were no Purchases/Sales in 1,3,6 months after a company's inclusion, it was excluded from the portfolio. All stocks are equally weighted. The analysis [7] showed that:

  • Highest out performance was in Small Caps insider Purchase portfolios. Smaller in Mid Caps Purchase portfolios. And smallest in Large Caps insider Purchase portfolios.
  • 'Insider effect' fades away with longer holding horizon.
  • Sell signals are stronger than Buy signals.
  • Sell signals are the strongest when more than 50% of holdings are sold.
  • Buy signals are the strongest when signal transaction value is <80.000 SEK.

Studies of insider trading

Year Author Article/Research
1966 Garry A. Glass Extensive Insider Accumulation as an Indicator of Near-Term Stock Price Performance [8]
1968 James H. Lorie, Victor Niederhoffer Predictive and Statistical Properties of Insider Trading [9]
1974 Jeffrey F. Jaffe Special Information and Insider Trading [10]
1976 Joseph E. Finnerty Insiders and Market Efficiency [11]
1979 Jerome B. Baesel, Garry R. Stein The Value of Information: Inferences from the Profitability of Insider Trading [12]
1985 Dan Givoly, Dan Palmon Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence [13]
1997 Alan Gregory, John Matatko and Ian Tonks Detecting Information From Directors Trades: Signal definition and variable size effects [14]
2001 Josef Lakonishok and Inmoo Lee Are Insider Trades Informative?[15]
2002 Sylvian Friederich, Alan Gregory, John Matatko, Ian Tonks Short-run Returns around the Trades of Corporate Insiders on the London Stock Exchange [16]
2003 Mathijs A. Biesta, Ronald Q. Doeswijk, Han A. Donker The Profitability of Insider Trades in the Dutch Stock Market [17]
2006 Emanuele Bajo, Barbara Petracci Do what insiders do: Abnormal performances after the release of insiders' relevant transactions[18]

References

  1. ^ "America Catalyst Capital Advisors". America Catalyst Capital Advisors.
  2. ^ "America Catalyst Capital Advisors" (PDF). America Catalyst Capital Advisors. Archived from the original (PDF) on 2016-03-04. Retrieved 2014-08-24.
  3. ^ "Dovre Forvaltning". Dovre Forvaltning. 2014-03-21.
  4. ^ "Fund Facts: Dovre Inside Nordic". Dovre Forvaltning.
  5. ^ "Dovre Insider Study" (PDF). Dovre Forvaltning.
  6. ^ "Dovre Insider Study" (PDF). Dovre Forvaltning.
  7. ^ "Dovre Insider Study" (PDF). Dovre Forvaltning.
  8. ^ "Extensive Insider Accumulation as an Indicator of Near-Term Stock Price Performance". Garry A. Glass.
  9. ^ "Predictive and Statistical Properties of Insider Trading" (PDF). James H. Lorie, Victor Niederhoffer.
  10. ^ Jaffe, Jeffrey F. (1974). "Special Information and Insider Trading". The Journal of Business. 47 (3): 410–428. doi:10.1086/295655. JSTOR 2352458.
  11. ^ "The Value of Information: Inferences from the Profitability of Insider Trading" (PDF). Jerome B. Baesel, Garry R. Stein.
  12. ^ Baesel, Jerome B.; Stein, Garry R. (1979). "The Value of Information: Inferences from the Profitability of Insider Trading". The Journal of Financial and Quantitative Analysis. 14 (3): 553–571. doi:10.2307/2330188. JSTOR 2330188. S2CID 154470151.
  13. ^ Dan Givoly, Dan Palmon (1985). "Insider Trading and the Exploitation of Inside Information: Some Empirical Evidence". The Journal of Business. 58 (1): 69–87. doi:10.1086/296283. JSTOR 2352910.
  14. ^ Alan Gregory, John Matatko and Ian Tonks (1997). "Detecting Information From Directors Trades: Signal definition and variable size effects". Journal of Business Finance & Accounting. 24 (3): 309–342. doi:10.1111/1468-5957.00107.
  15. ^ "Are Insider Trades Informative?" (PDF). Josef Lakonishok and Inmoo Lee. Archived from the original (PDF) on 2012-09-07. Retrieved 2014-08-24.
  16. ^ "The Profitability of Insider Trades in the Dutch Stock Market" (PDF). Sylvian Friederich, Alan Gregory, John Matatko, Ian Tonks.
  17. ^ "The Profitability of Insider Trades in the Dutch Stock Market" (PDF). Mathijs A. Biesta, Ronald Q. Doeswijk, Han A. Donker. September 2003. SSRN 498042.
  18. ^ "Do what insiders do: Abnormal performances after the release of insiders' relevant transactions" (PDF). Emanuele Bajo, Barbara Petracci.
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