Style Timing with Insiders
Heather S. Knewtson
Central Michigan University - Department of Finance and Law
Richard W. Sias
University of Arizona - Department of Finance
David A. Whidbee
Washington State University - Department of Finance, Insurance and Real Estate
November 19, 2009
Aggregate demand by insiders predicts time-series variation in the value premium — between 1978 and 2004, a one standard deviation increase in aggregate insider demand in the previous six months forecasts a 53 basis point decline (6.54% annualized) in the expected value premium in the month following publication of the insider trading data. Further tests suggest that insider trading forecasts the value premium because insiders trade against systematic investor sentiment-induced mispricing and growth stocks are more sensitive to changes in sentiment than value stocks, i.e., insiders sell (buy) when markets, and growth stocks especially, are overvalued (undervalued). As a result, our analysis suggests that investors can use signals from aggregate insider behavior to adjust style tilts and exploit sentiment-induced mispricing.
Number of Pages in PDF File: 43
JEL Classification: D82working papers series
Date posted: July 26, 2009 ; Last revised: November 23, 2009
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.313 seconds