Carr Bettis, John B. Guerard and Daniel McAuley
Volume 13, Number 4, 2015
For 40 years academic literature has reported statistically significant excess returns to selected insiders trading in their firms’ shares, and similar evidence for outsiders who selectively mimic insider trading decisions spans three decades. However, constructing tradable signals leveraging insider trading data is challenging due to the irregular frequency of trades. We report that carefully constructed insider trading signals continue to produce statistically significant excess returns in US equity markets. We combine an insider factor with a non-insider stock selection model that is itself statistically significant and report economically meaningful incremental returns. The combined model is robust to different portfolio optimization techniques.