Welcome to the inaugural blog post of SmartInsiderTrades.com! I'm excited to kick things off with a story that sparked the creation of this ambitious project.
It all began with a captivating discovery that ignited my passion and motivated me to develop this intricate software. One day, amidst the flurry of social media updates highlighting significant stock transactions by influential figures such as CEOs and CFOs, I found myself intrigued. Curious to learn more about insider trading, I conducted a quick online search and stumbled upon a Master's Thesis from the Copenhagen Business School titled "The Privilege of Possessing Inside Information: A Study of Insider Trading in Denmark."
Denmark is renowned for its remarkably efficient economy, and I was initially inclined to believe that the behavior of insiders in Denmark could be extrapolated and applied to other countries. However, as I delved deeper into the research, I soon realized that this assumption was far from accurate.
This post is a bit of a journey – think of it like a long chat with a good friend. We'll be delving into a study that's only 116 pages long, but trust me, it's packed with eye-opening insights and stories you won't want to miss. For those interested, the original PDF file of the thesis can be downloaded from this page: https://research.cbs.dk/en/studentProjects/the-privilege-of-possessing-inside-information-a-study-of-insider. Additionally, you can obtain a direct download link to the Master’s Thesis on https://SmartInsiderTrades.com/files/pdf/The-Privilege-of-Possessing-Inside-Information.pdf. Feel free to share this valuable resource with anyone keen on exploring this fascinating topic further.
Throughout this blog post, you'll often encounter references to specific pages and quotes. This is because there's little additional commentary needed— the content speaks for itself.
One of the most remarkable aspects of this publication is the student's access to genuine transactions belonging to Danish taxpayers (see page 25).
"The trading data was acquired by our supervisor, Steffen Andersen. It contains information of the trades made by everyone living in Denmark between January 2nd 2012 and December 30th 2016, covering nearly five full years."
This access was facilitated by the supervisor, who provided a privilege rarely accessible to most analytics platforms worldwide.
The Research Question
(see page 21)
To explore this, we formulated the research question: "to which extent can it be argued that corporate insiders and their network are in a privileged position compared to the general public prior to the release of corporate announcements?"
Good question! How does it feel to sit in a cozy chair, reading a nicely-prepared quarterly report from a certain public company, and assuming that you are smarter than this privileged group of people?
(see page 39)
Also, insiders and individuals in listed companies have a much greater probability of being self-employed than the average trader. In addition to this, insiders are much more likely to be working within finance, as management or top management, which once more seems consistent with who one would expect to be insiders and/or to be related to listed companies.
The hypotheses described in the study offer comprehensive insights into insider trading, providing all the information you need on the subject.
I'll keep the same explanation below each hypothesis to serve as a reminder for those who are insiders.
Insiders' trading activity rises prior to the release of corporate announcements.
They are exactly those people who always know "something".
Corporate insiders are better at predicting the direction of a significant announcement than outsiders.
They are exactly those people who always know "something".
Differences in trading patterns are not explained by socioeconomic factors.
They are exactly those people who always know "something".
Corporate insiders, their network, and family earn higher returns than the overall population prior to company specific announcements
They are exactly those people who always know "something".
Another intriguing aspect highlighted in this study, particularly on page 33, underscores the rarity with which platforms analyzing insider trades can detect familial connections. The Danish government's robust infrastructure and commitment to transparency significantly contribute to such insightful findings.
To investigate the family ties, the population data from Statistics Denmark is linked to the individuals from the CVR register data. From this, we identify parents, children and spouses of the traders. If a trader is related to an insider or person in a listed company in this way, he/she is identified as a family trader. If this individual trades in the same company that their relative is associated to, while the relative is associated with said company, the individual is classified as an insider family trader. This will allow us to examine whether an individual trades differently if she is related to someone who is associated with a listed company.
To be continued...