Style Timing with Insiders

43 Pages Posted: 26 Jul 2009 Last revised: 23 Nov 2009

See all articles by Heather Knewtson

Heather Knewtson

Michigan Technological University - College of Business

Richard W. Sias

University of Arizona - Department of Finance

David A. Whidbee

Washington State University - Department of Finance, Insurance and Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2009

Abstract

Aggregate demand by insiders predicts time-series variation in the value premium — between 1978 and 2004, a one standard deviation increase in aggregate insider demand in the previous six months forecasts a 53 basis point decline (6.54% annualized) in the expected value premium in the month following publication of the insider trading data. Further tests suggest that insider trading forecasts the value premium because insiders trade against systematic investor sentiment-induced mispricing and growth stocks are more sensitive to changes in sentiment than value stocks, i.e., insiders sell (buy) when markets, and growth stocks especially, are overvalued (undervalued). As a result, our analysis suggests that investors can use signals from aggregate insider behavior to adjust style tilts and exploit sentiment-induced mispricing.

JEL Classification: D82

Suggested Citation

Knewtson, Heather and Sias, Richard W. and Whidbee, David A., Style Timing with Insiders (November 19, 2009). Available at SSRN: https://ssrn.com/abstract=1438250 or http://dx.doi.org/10.2139/ssrn.1438250

Heather Knewtson

Michigan Technological University - College of Business ( email )

124 Academic Office Bldg.
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HOME PAGE: http://https://www.mtu.edu/business/people-groups/faculty/heather-knewtson/

Richard W. Sias (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

David A. Whidbee

Washington State University - Department of Finance, Insurance and Real Estate ( email )

Todd 470
Pullman, WA 99164-4746
United States
509-335-3098 (Phone)
509-335-3857 (Fax)

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