Sarah Roden

About the Author Sarah Roden

Sarah writes about stock market news for TipRanks. She graduated as member of Phi Beta Kappa from the University of Richmond in Richmond, Virginia.

TipRanks Uncovers Pattern in Insider Trading; Groundbreaking Results

Last week, there was a tremendous display of confidence in Opko Health Inc. (NYSE:OPK) when CEO Phillip Frost made several discretionary purchases on the stock. Frost has been at the forefront of the diagnostic and pharmaceutical company since March 2007.

Since July 6, Frost has purchased over $400,000 worth of shares from Opko, or about 25,000 shares total. He purchased the shares in four transactions when shares were trading between $16.82 and $16.56. Shares last closed at $16.57.

According to patterns uncovered by TipRanks, investors can earn 5.45% in monthly returns by imitating buy transactions performed by top-ranked Insiders. This finding went above and beyond research published in the Journal of Finance in 2012, which proved that an investor could earn 0.82% in monthly returns by following “opportunistic” Insider transactions. “Opportunistic” transactions are different than uninformative transaction because uninformative transactions can be made for several reasons. It is common practice for corporate Insiders to receive payment in the form of stocks or stock options. If an Insider sells a large amount of shares in his/her own company, it is not necessarily a foreboding sign because many insiders are pressured to sell shares before options expire or as a means of income.

In the case of Opko, Phillip Frost is the top corporate Insider listed on TipRanks. When measured over a one-year horizon and no benchmark, Frost has an impressive 91% success rate making discretionary transactions and a +59.1% average return per transaction.

Phillip Frost

We created a simple test to prove that investors have the ability and available information to earn 5.45% in monthly returns: whenever an Insider bought a stock, we mimicked the transaction and held it open for a one month time period, thus simulating the return achieved by the Insider. After disregarding “sell” transactions and focusing only on “buy” transactions, TipRanks narrowed the parameters once step further and only analyzed Buy transactions made by the top performing corporate Insiders

Groundbreaking results showed that if you followed a top performing corporate Insider, you would have generated a 5.45% monthly return over no benchmark, or a 4% monthly return over the S&P 500. Just to make sure this was not a case of beginners luck, TipRanks back-tested the results 50 months, proving that 38 out of the 50 months, or 76%, were profitable to varying degrees.

All of these findings, and more, can be found on the Hot Stocks by Insiders page.

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