| July 30, 2020
Trades made by company insiders can offer clues as to future market direction - and whilst prior studies have proven its efficacy at a global level, how well does it perform for European stocks?
In this white paper, RavenPack Data Scientists sought to test the performance of insider transactions as a basis for trading European equities.
It follows on from a
in which the data yielded positive results when applied to a portfolio of global stocks.
Could the data work just as successfully on stocks in the European firmament, researchers wondered?
The first step was to filter out - by size and importance - those insider transactions likely to have the greatest impact on prices.
These were then used as the basis of a trading strategy, which buys the stock when net transactions turn positive and sells when they turn negative.
A strategy with a one-day holding period produced excess annualized returns of 5.4% and 9.2%, and information ratios of 1.3 and 1.7 for large/mid cap stocks and small-cap stocks respectively.
Adding a sentiment overlay calculated from the company’s underlying news flow helped improve signal strength, especially during negative sentiment trends.
The results of combining the two can be seen in the chart below which clearly shows how a negative sentiment overlay, in particular, increases excess returns.
To isolate the portfolio specific returns from other factors and determine whether insider transactions were responsible for generating the strategy’s alpha, it was tested using the MSCI Barra GEM3 model.
“We find that the performance is very similar to that of excess returns across all aggregation periods and market capitalizations, demonstrating persistent alpha generation emanating from our corporate insider transaction data model within the European Universe,” says Peter Hafez, Chief Data Scientist at RavenPack.
Easily implement the results of this White Paper using the RavenPack Analytics Platform, which includes a comprehensive and high-quality database of global insider transactions. Request a trial today.
Please use your business email. If you don't have one, please email us at firstname.lastname@example.org.
By providing your personal information and submitting your details, you acknowledge that you have read, understood, and agreed to our Privacy Statement and you accept our Terms and Conditions. We will handle your personal information in compliance with our Privacy Statement. You can exercise your rights of access, rectification, erasure, restriction of processing, data portability, and objection by emailing us at email@example.com in accordance with the GDPRs. You also are agreeing to receive occasional updates and communications from RavenPack about resources, events, products, or services that may be of interest to you.
Your request has been recorded and a team member will be in touch soon.