Corporate insiders have considerably more information about their companies than the individual investor. This is why the SEC requires anyone who is a director, high-level executive, or 10% owner in a publicly traded company to report any transaction they make in the company’s stock to the SEC within two business days. SmarterAnalyst analyzed over 1.5 million such SEC filings (Form-4 documents) using big data and machine learning to develop an in-depth classification of the different actions taken by these corporate insiders. Our results show us which transactions are most likely to outperform the market.
Our initial analysis revealed that over 80% of insider transactions do not reflect the insider’s knowledge or sentiment towards the company; these uninformative transactions include employee stock grants, scheduled sell-offs and timed purchases. After filtering out much of the noise, the question remained ‒ how can the informative 20% of the transactions (~50,000 insider transactions per year) be used to generate a trading strategy that significantly outperforms the S&P 500?
This is where our quant researchers made a significant discovery ‒ not all insiders are created equal. Some insiders are much better than others at timing their investment decisions. Leveraging TipRanks’ market-leading financial ranking engine, we measured the short-term performance of trades made by insiders to find the top ‘insider rock stars’. Imitating the buy transactions made by these select few showed returns that significantly outperformed the index year after year.
Our strategy analyzes thousands of insider transactions every day to identify the best four day-trading stock picks expected to have the highest return that day. These stocks are delivered to your inbox by 8 AM EST and enable you to leverage our years of quant research to your advantage.
