Aggregate Opportunistic Insider Trading and Market Return Predictability
52 Pages Posted: 15 Nov 2018 Last revised: 26 Mar 2020
Date Written: July 25, 2019
By excluding routine insider trades, we construct an aggregate opportunistic insider trading index and find that it positively predicts future market returns in both in-sample and out-of-sample tests. A one-standard-deviation increase in the index is associated with a 0.52% increase in S&P 500 excess returns in the next month. Moreover, a mean-variance investor has a utility gain of 332 basis points annually when using the index to time the market. The index predicts market returns up to four months, and the return prediction does not revert afterward. Finally, the index predicts macroeconomic fundamentals, such as GDP growth.
Keywords: Aggregate Insider Trading; Market Return; Opportunistic Trades; Out-of-Sample Tests; Macroeconomic Fundamentals
JEL Classification: C58, G12, G14, G17
Suggested Citation: Suggested Citation