Barron’s – Insider Buying’s Positive Message

Author: , Post Date: August 27, 2020

Excerpt from Barron’s commentary compendium.

Aug. 28, 2020 – This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

In the U.S. equity market, a popular insider-trading gauge is the Insider Buy/Sell ratio, which is the aggregate insider purchase over insider sale. Normally, the ratio stays at 0.4 to 0.5, indicating roughly twice as much insider sale volume as purchase. This is understandable, given that many insiders receive stock compensation. There have been only 11 months when the ratio reached above one since 2004, meaning there are more insiders buying than selling their stocks. Interestingly, each insider-purchase spike coincided with a market drop. While the highest reading on the ratio came from the financial crisis in November 2008, the second-highest reading was in March this year. Both can be viewed as the entry signal of the decade.

Digging further into the insider-buying frenzies, we find that the stock market post-performance once the Insider Buy/Sell ratio jumps above one is phenomenal. The U.S. equity market increases about 25% in one year and 54% in three years. Next time someone doesn’t believe in market timing, maybe we should point them to the corporate insiders. —Leo Chen

Full article at Barron’s (paywall):

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