Aggregate Opportunistic Insider Trading and Market Return Predictability

52 Pages Posted: 15 Nov 2018 Last revised: 26 Mar 2020

See all articles by Shiyang Huang

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Weinan Zheng

The University of Hong Kong Faculty of Business and Economics

Date Written: July 25, 2019

Abstract

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

Huang, Shiyang and Lin, Tse-Chun and Zheng, Weinan, Aggregate Opportunistic Insider Trading and Market Return Predictability (July 25, 2019). Available at SSRN: https://ssrn.com/abstract=3272112 or http://dx.doi.org/10.2139/ssrn.3272112

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Weinan Zheng (Contact Author)

The University of Hong Kong Faculty of Business and Economics ( email )

Hong Kong
(+852) 5547-5290 (Phone)

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