S&P Capital IQ Research Finds Hidden Profits in Insider Filings
New Report Focuses on Investors Who Pursue Trading Strategies That Mimic Corporate Officers' Buying and Selling Actions
NEW YORK, Oct. 28, 2013 /PRNewswire/ -- S&P Capital IQ, a leading provider of multi-asset class data, research and analytics, has released a new study that looks at the impact of public disclosure of insider trading on equity prices and how outside investors can earn higher returns by trading on "informative" insider trading signals. For a copy of the report click here.
"Informative Insider Trading: The Hidden Profits in Corporate Insider Filings," published by S&P Capital IQ's Quantamental research unit and authored by Li Ma, Temi Oyeniyi and Simon Chen, looks at publicly available trading data from 3000 companies over the last five years whose insiders were net purchasers or sellers of company stock. Consistent with existing literature, the report shows that the trades of corporate insiders may be predictive of future stock returns. In fact, companies whose corporate insiders were net stock purchasers (sellers) generated positive (negative) excess returns of 0.68% (-0.19%) within one week following the announcements of insider transactions.
"Corporate insiders are a unique class of traders as they possess the most intimate information about a firm," says Dave Pope, MD S&P Capital IQ and editor of the report. "Utilizing S&P Capital IQ's ownership database which, among other data items, captures insiders' traded shares, holding position and filing dates, our team has been able to explore alpha signals built from publicly available information regarding insider transactions, with some interesting findings."
Among the report's findings are:
- Opportunistic buy, intensive buy and directional change from sell to buy acted as strong indicators of future stock performance, generating one-week abnormal returns of 0.48%, 2.47% and 0.55%, respectively.
- Mimicking the net purchase actions of CEOs yielded an excess return of 1.27% over the one week after the trading
- A trading strategy based on the three characteristics: opportunistic, intensive and directional change, yielded 0.36% weekly excess returns after transaction costs, statistically significant at the 1% level.
Data used in "Informative Insider Trading: The Hidden Profits in Corporate Insider Filings," comes from S&P Capital IQ's Ownership database for insider trading activities, including the number of shares bought or sold by each insider, the holding position of the insider after each transaction, and corresponding filing date. To identify CEO's trades, the authors joined the S&P Capital IQ's People Intelligence database with the Ownership database, allowing them to focus on open market transactions for Russell 3000 companies. Their investigations focused on the time period of September 1, 2008 through May 31, 2013.
S&P Capital IQ's quantamental research focuses on actionable investment strategies for global equity investors. The audience for its research includes US and global buy-side, hedge fund, family office, and high net worth investors.
About S&P Capital IQ
S&P Capital IQ, a business line of McGraw-Hill Financial (NYSE: MHFI), is a leading provider of multi-asset class and real time data, research and analytics to institutional investors, investment and commercial banks, investment advisors and wealth managers, corporations and universities around the world. We provide a broad suite of capabilities designed to help track performance, generate alpha, and identify new trading and investment ideas, and perform risk analysis and mitigation strategies. Through leading desktop solutions such as the S&P Capital IQ, Global Credit Portal and MarketScope Advisor desktops; enterprise solutions such as S&P Capital IQ Valuations; and research offerings, including Leveraged Commentary & Data, Global Markets Intelligence, and company and funds research, S&P Capital IQ sharpens financial intelligence into the wisdom today's investors need. For more information visit: www.spcapitaliq.com.
All information provided by S&P Capital IQ is impersonal and not tailored to the needs of any person, entity or group of persons. Past performance is no indication of future results. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only current as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you nor is it considered to be investment advice. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.
SOURCE S&P Capital IQ
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