In this white paper, the focus is on trading strategies derived from insider transactions, which on their own produced returns of between 8-14%, and when overlaid with RavenPack news sentiment data considerably more.
- When applied to small caps the data performed well even over 30+ day holding periods
- Adding a 3-month sentiment overlay led to over 50 basis points of excess returns
- When decomposed from other market factors the data remained a significant source of alpha
Results using the sentiment overlay over different timeframes and for companies of varying market capitalizations:
Generating Alpha from Insider Transactions
Insider transactions data can provide valuable insights that are not directly accessible in the public domain. It provides investors with insights into how C-level executives interpret their own information flow and form their views on potential mispricings in the market. This recent paper looks at the new RavenPack Insider Transaction dataset and presents a simple way to translate this information into actionable insights within the context of a trading strategy.
Here are the main findings:
● Filtering for the most relevant insider information brings superior price move predictability.
● Days with Net Insider Value can be used to predict future price movements.
● A basic strategy following the Net Insider Values delivers a robust global portfolio performance, with small exposure to systematic risk factors. A global portfolio strategy with a one-day holding period achieves Annualized Returns of 8.6% and 13.9% and Information Ratios of 1.82 and 2.64 for the Mid/Large-Cap and Small-Cap strategies, respectively.
● Combining insider transactions with news sentiment data helps improve signal strength, especially around a negative sentiment trend.