November 17, 2013

Can you trade based on insider trading?

The Swedish company Scientia Fund Management has an innovative investment model called InsiderModellen. The idea behind the model is to determine if you should invest in a company based on if insiders (the top managers) have invested in the company. Scientia believe the managers in these companies have a better understanding of their companies than anyone else. The managers will invest in their own company if they think the price is right and they will be more reluctant to invest if they believe the price of the stock is too high.  

Scientia has analyzed data from 1994 up to 2009 and the data includes more than 100 000 insider transactions. Based on these transactions, they have come up with a model with 100 parameters that automatically determines if they should invest in a company or not. This is good from a psychological point of view since the investment managers can leave their emotions outside of the equation. No matter what happens, they have to follow the model. 

They have now released data that reveals how positive insiders in different countries are today:
  • United States: 10 percent of the insider transactions in 2013 were buy. It hasn't been this low since 2007 so insiders are negative and you should also be reluctant to invest if you follow this model
  • Spain: 19 percent. Lowest in 10 years
  • England: 31 perent. Not this low since 2005
  • Italy: 48 percent
  • South Korea: 60 percent. Up from 42 percent in 2009, so South Korea might be a good investment opportunity if you follow this model
  • Finland: 39 percent
  • Sweden: 36 percent
  • Turkey: 81 percent, so Turkey might also be a good investment opportunity if you follow this model

Source: @Erik_Liden