Thursday, February 07, 2013

Sucker Alert? Insider Selling Surges After Dow 14,000 - Yahoo Finance

Sucker Alert? Insider Selling Surges After Dow 14,000 - Yahoo Finance:

"Insiders are waving the cautionary flag in an increasingly aggressive manner."

There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company's stock this aggressively was in early 2012, just before the S&P 500 (^GSPC) went on to correct by 10 percent to its low for the year."

While much evidence suggests insiders do beat the market, it appears less likely that we can by trading on the news of their trades.  To wit:

On the profitability of their trades, here is a recent study from Spain:

"This paper[s] that insiders earn excess profits when investing on corporate nonpublic information, while outsiders mimicking them fail to obtain those excess returns...."

and some from the US:

 "Trading by corporate insiders and their tippees is analyzed in Anheuser-Busch's 1982 tender offer for Campbell Taggart. Court records that identify insider transactions are used to disentangle the individual insider trades from liquidity trades. Consistent with previous studies, insider trading was found to have had a significant impact on the price' of Campbell Taggart."

In the Journal of Finance Lisa Meulbroek(a real superstar) writes:
"Using previously unexplored data on illegal insider trading from the Securities and Exchange Commission, this paper finds that the stock market detects the possibility of informed trading and impounds this information into the stock price. Specifically, the abnormal return on an insider trading day averages 3%, and almost half of the pre-announcement stock price run-up observed before takeovers occurs on insider trading days. Both the amount traded by the insider and additional trade-specific characteristics lead to the market's recognition of the informed trading."

No comments: