The impact of trade-specific factors on insiders’ excess returns : An evaluation of information asymmetry dynamics in the modern market environment of the Stockholm Stock Exchange

Abstract: “An insider is a person who by his or her position in the company is regarded to have particularly advantageous possibilities to gain confidential information about the company.” – Finansinspektionen Replicating investment decisions made by insiders is a frequently discussed and studied investment strategy. The rationale lies in the notion that insiders should have better understanding of the future performance of the company by which they are employed, and therefore replicating their investments seems intuitively as a good strategy for achieving excess returns. Numerous studies have verified that insiders have managed to achieve excess returns historically. However, what has not been examined as extensively is how insider trades differ in signal value in the modern stock market environment of today. This thesis addresses this very issue by combining qualitative and quantitative finance theories with a data-driven, mathematical analysis of the risk-adjusted return of all insider transactions made on the Stockholm Stock Exchange during the last ten years. The method is based on regression analysis applied to two investment horizons. The result is a mathematical mapping that describes the historical signal value of different insider trade-specific drivers.