7 ms·

I'm skeptical of claims that insider trading is prevalent among those that are not professional traders. I recently analyzed the trading activity of Senators [0

by bko 7y ago

I'm skeptical of claims that insider trading is prevalent among those that are not professional traders. I recently analyzed the trading activity of Senators [0], and found the evidence that rampant insider trading to be unconvincing. In its simplest form, insider trading consists of someone knowing something about performance or similar relative measures that would affect a stock price. But as Matt Levine points out, knowing the future isn't that helpful [1]. Research found that even when it has been proven that professional investors had and acted on insider information, their track record was still spotty. I even made an app [2] where you can get a companies past and future performance numbers, and you try and guess which of two opposite paths the stock took. I call it the insider trading game, and its a lot harder than it looks. [edit] Just reminded of the Jim Cramer still showing two headlines: "More than 16M Americans have lost jobs in 3 week, dow's best week since 1938" [3]. I'm skeptical a non-professional trader would be able to somehow deduce strong stock market performance from early access to something like 16mm Americans having lost their jobs in 3 weeks. [0] https://medium.com/ml-everything/analyzing-us-senators-stock-picks-e8106bbbe8e https://medium.com/ml-everything/analyzing-us-senators-stock... [1] https://www.bloomberg.com/opinion/articles/2019-11-26/knowing-the-future-isn-t-that-helpful https://www.bloomberg.com/opinion/articles/2019-11-26/knowin... [2] https://insider-trading-game.netlify.com/ https://insider-trading-game.netlify.com/ [3] https://i.redd.it/rrnajxjdb6s41.jpg https://i.redd.it/rrnajxjdb6s41.jpg

andreilys 7y ago
“knowing the future isn't that helpful” Did you actually read the article? It specifically talks about press releases put out by companies. That’s just a sliver of the type of insider trading knowledge you can trade off of. There are all types of other insider info. For example if you work at the FDA and know in advance what drugs are about to be approved/rejected. Also I tried your app and the prompt it gives is... not even close to insider info “ Regeneron Pharmaceuticals Inc is an integrated biopharmaceutical company. It discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions.” I fail to see how this is helpful info? Now if on the other hand it said “the company discovered a COVID drug in final approval with FDA”, that would be much easier to trade on.
- bko 7y ago
  Look below the chart, you get their financial statements and metrics, including the ones are in the time span you're trying to predict.
  - lonelappde 7y ago
    that's all info that corresponds to guidance given in advance. It's slightly useful but not substantial info like a regulatory ruling or a pandemic.
    - andreilys 7y ago
      Yep exactly. Knowing the right future information can be insanely profitable. No matter what clickbait headline Matt Levine can come up with.
- komali2 7y ago
  > Did you actually read the article? This is a verbatim example of not assuming good faith in the guidelines for this site
Gys 7y ago
This post [0] in a related disccusion yesterday refers to research in 2004 [1] that clearly concludes senators did better trades than the index. But maybe times have changed. Or senators. [0] https://news.ycombinator.com/item?id=22837708 https://news.ycombinator.com/item?id=22837708 [1] https://projects.iq.harvard.edu/files/gov2126/files/ziobrowski_2004.pdf https://projects.iq.harvard.edu/files/gov2126/files/ziobrows...
- bko 7y ago
  I've heard about this study but haven't read it carefully. My problem with these studies is that their methods of analysis are overly complicated I'm not knowledgeable enough to know if the results are being managed. The range is from 1993-1998 while this was published in 2004. I'm not sure why that range was selected. Also, consider the universe: > Initially, we begin with 6,052 transactions. Before analysis we apply several screens to the data. Only U.S. common stocks are included in the study. These screens eliminate, among other things, all preferred stock, ADRs, REITs, foreign stocks, and mutual funds. We also eliminate all initial public offerings (IPOs) from the sample.2 In total, 360 observations are eliminated for the reasons given above. Among the surviving transactions, approximately 59% of the stocks are listed on the NYSE, 40% are traded on the NASDAQ, and about 1% are listed on the ASE. Why eliminate those other things? Would the conclusion have changed if they had been included? > As indicated previously, Senators report transaction amounts only within broad ranges. Ranges are as follows: $1,001 to $15,000 $15,001 to $50,000 $50,001 to $100,000 $100,001 to $250,000 $250,001 to $500,000 $500,001 to $1,000,000 over $1,000,000 And from the paper: > As before, we again estimate the value of their trades using the midpoint of the range reported by the Senators for all transactions less than $250,000. For all transactions above $250,000, we assume a transaction size equal to $250,000. Why floor it at 250? Why not keep the midpoint, at least for 250 - 500 and 500 - 1mm? I also thought it was odd to look at two portfolios, one of buys and one of sells. If the buys outperformed, but sells were a lot larger, then its not a good strategy on the whole. That's before we even get to the performance measure used. Think could all be above the board and decided upon prior to actually crunching the numbers. But there are too many things here for me to definitively buy the narrative.
awinder 7y ago
I can’t tell because the post source is hugged to death but I’m just speculating that this is utilizing sec form 4 data or similar sources? There can be some interesting signal there that you could incorporate into a trading strategy but that’s mostly semantic and another story, I totally agree with you broadly. It will be a minor miracle if there isn’t fraud that washes out with a market crisis of this scope, but I’ll be amazed if the grand majority of trading isn’t above board. Really enjoyed your medium series btw!
mettamage 7y ago
This sounds like a fun game! There was at one point also this game called chartgame.com, the interface when the site was still old is subtly (but importantly) different from now [1]. The most fun thing IMO was that you'd see the company name after you were done with that particular company. It was made to see whether technical analysis worked. On another note, I was wondering how you got the data. So I opened my Chrome dev tools to see. I'll be checking financialmodelingprep.com out! [1] https://www.youtube.com/watch?v=lJAw_LXcUgY https://www.youtube.com/watch?v=lJAw_LXcUgY -- someone playing the old version
- bko 7y ago
  Financial Modeling Prep is amazing. Incredible that its free and well documented. My proudest github star [0] is from the creator of Financial Modeling Prep, Antoine Vulcain, who liked my site. [0] https://github.com/breeko/stox https://github.com/breeko/stox
api 7y ago
It would certainly be possible for them to abuse their position in this way, but there may be enough counter motivations. Most are already wealthy, so they are not going to be hungry for money. They are also fearful of negative publicity or information that could help a political opponent. Abusing their position to trade stocks could easily end up in an opponent's attack ad.
- lonelappde 7y ago
  People don't get wealthy without being hungry for money. Money hunger isn't satiated by money.
mlinsey 7y ago
I feel like most quarters won't necessarily give easy opportunities for insider trading, because stock prices over the course of the quarter are greatly moved by macro trends that are hard to forecast. But there are definitely some short-term events that move a stock in fairly predictable ways (an acquisition offer, an imminent recall, earnings coming in way way above or below guidance, etc). With a bit of leverage it's easy to just wait and make plenty of money off of particular events rather than maintaining a continuous insider-trading portfolio. Of course this strategy makes your trades much more suspicious too...
kelekekkkd8 7y ago
So if no one can play the market successfully, it’s socialism propping up the rich and forced austerity for the poor to maintain the “story”, as Trump calls it, romantic nonsense as Thiel writes about it, propping up the imagined belief we need elites pushing us forward. Elite wealth managers alone, btw. A minority of rich actually have marketable skills. Has nothing to do with business acumen (math models have shown one time success was luck not skill and continued success is simply bought; hi Bloomberg) So yeah let’s keep playing this game, guys! Physics I’m sure shows somewhere this was predetermined by the motion of the stars and matter we can’t see. Why NOT subject the mathematical majority to a system that (conveniently) won’t educate them well enough to even offer a chance at falsifying the underlying presumptions!
- wtf_is_up 7y ago
  Cope.
take_a_breath 7y ago
All information is not created equal. Classified briefings on a virus that may shutdown entire sectors of the economy isn’t the same as unemployment numbers. Everyone knew a ton of people were going to be laid off. From your blog: “Here’s a trade from David Perdue, the great Senator of Georgia. He actually made nearly half the trades of our dataset, and it makes sense since he’s worth $15.8 million” Why would it makes sense for him to make half the trades because he is worth $15.8 million? Plenty of Senators are worth more than that.
- capableweb 7y ago
  > he’s worth $15.8 million On a unrelated note, how the hell can a senator sit on so much and be worth so much? Aren't they supposed to have the public in their main interest? Sitting on all those assets looks really suspicious. Seems they care more about themselves than their community/country.
  - seibelj 7y ago
    Why can’t you be rich and also care about your community? You don’t start life as a senator, you have a career before it.
    - capableweb 7y ago
      Because you get rich by not distributing what you earn, back into the economy/communities, but by hoarding. Someone who is worth $15.8 million is clearly hoarding and not utilizing the funds to improve what's around them.
      - RHSeeger 7y ago
        Your statement is overly broad and untrue. Someone who is worth 15.8 million could very easily be making enough to be worth 200 million but giving a lot to charity. For Perdue's case, he appears to average around 2% of his earnings to charity, which isn't an amazing amount, but it's not negligible either. But the point is that how much someone is worth doesn't "clearly" indicate what they are doing with their money. There are plenty of very rich folks that give / have given a lot back to society.
vladimirralev 7y ago
Let's consider a recent example. The massive Fed/Treasury coordinated $2T+ bailout from last week. This thing came as a surprise to most us. Prior to this we saw 10 days of "weird" bullish activity. Market was going up on incredibly bad news, some banks such as Goldman advised high-end clients to buy stocks for unknown reason. And then the news came. Later it was revealed that this SPV had wide congressional support. So 1000s of officials from the White House, Fed, Treasury dept and Congress were sitting on this info for 2 weeks. Now add their staff that worked on getting this done, lawyers, accountants, advisors, regulators, oh and BlackRock who executed the deal. There is exactly zero chance this piece of info wasn't leaked to all high end clients in the banks at least a week in advance.
- bko 7y ago
  I don't doubt it was leaked. But even with that information, unprecedented Fed support was speculated for some time but crystalized on March 3rd when Fed lowered rates 0.5%. the market still went down since then. Maybe it didn't go down as much as it would have had the Fed not intervened, but that's difficult to profit from. Market recovered a bit and you can point to another Fed policy in hindsight and say this caused the rebound.
  - cheez 7y ago
    First was expected, second was a surprise.
    - deleted 7y ago
      [deleted]
daniel-levin 7y ago
I have experience working on civil investigations of financial crime. It takes a very long time to prosecute white collar crime of all kinds. Especially insider trading. The most effective technique is to overwhelm the accused with reports containing facts that don’t constitute cold, hard evidence of crime, and then wait for them to buckle under the pressure and admit guilt
deleted 7y ago
[deleted]
ptbello 7y ago
> I recently analyzed the trading activity of Senators [0] How is this relevant? Surely any senator knowingly engaging in insider trading wouldn't do so directly. They would get someone else to profit from the info and give back to them in either untraceable or legit ways.
- philipodonnell 7y ago
  Insider trading By elected officials isn’t against the law. There’s no reason for them to hide it. There have been several recent examples of senators openly insider training and no repercussions for being caught.
  - malcolmxtucker 7y ago
    Optics matter, that's enough of a reason to hide it.
AznHisoka 7y ago
I agree that insider trading is less prevalent than people think, simply because lots of people love to believe in conspiracy theories, and put on a tin foil hat. However, in the Bloomberg article you mentioned, it was cited that the hackers had a 77% success rate. Any serious investor would tell you that's an incredibly high success rate, as it's impossible to be 100% right all the time. If you had that hit rate, you're almost guaranteed to beat the index by a very large margin. Lastly, it's possible to still have insider info, and not make money on the trade. That doesn't make it legal, though, does it? I think that's still insider trading - it's just making the wrong bet. If I had access to all insider info, I'd be super picky. Ignore 99% of what I hear (ie 16M Americans are unemployed, big whoop! everyone knows), and only trade on the 1% of info that will almost certainly move the markets (ie COVID-19 will shutdown entire cities). Extremely difficult to do if you love trading, but the optimal strategy.
nosuchthing 7y ago
If only we could trace insider trades using some sort of big data system. Hmm. https://www.reuters.com/article/us-column-insidertrading-saft/insider-trading-all-the-cool-kids-are-doing-it-idUSBRE93A13K20130411 https://www.reuters.com/article/us-column-insidertrading-saf... KID TRADERS Using data on a half a million accounts from Finland from 1995 to 2010, the study came to a surprising conclusion: accounts set up to benefit kids 10 years and under did really well at stock picking, and did especially well just before mergers, earnings releases and events that generate big stock moves. The analysis was possible since Finland makes available unusually detailed information about the identities of investors. “When guardians trade through under-aged accounts, there is a relatively high probability that they are trading on private information,” the authors, Henk Berkman, at University of Auckland, Paul Koch at the University of Kansas and Joakim Westerholm at the University of Sydney, conclude in a paper slated to be published in the Journal of Finance. The gap between the junior set and typical accounts held by adults was striking: in the day following trades made by kids, their accounts outperformed the adult accounts by 9 basis points. Ahead of major earnings announcements, the kids chose correctly whether to buy or sell 57 percent of the time and beat their elders by 1.1 percent in the following day. It gets even better - at least for junior. On trades made the day ahead of a merger announcement, juvenile portfolios outperformed by 12 percent the following day, and made the right decision to buy or sell an uncanny 72 percent of the time. The rest of the market, by the way, chose correctly whether to buy or sell only 50 percent of the time. This is probably not all due to inside knowledge, according to the study. The guardians tended to be richer and may simply have been more successful at investing, the authors argue, due perhaps to higher intelligence or an advantage in obtaining legal, but valuable information. Even so, the fact that the juvenile accounts outperformed ahead of mergers while the guardians’ accounts did not implies that the adults were smart enough to know better than to trade on inside knowledge in an easily traceable way.
Endlessly 7y ago
“knowing the future isn't that helpful” — while true, it’s irrelevant as it relates to if the behavior is criminal insider trading activity, even if the trade resulted in no gains, it’s still criminal behavior.

by bko 7y ago

andreilys 7y ago

“knowing the future isn't that helpful” Did you actually read the article? It specifically talks about press releases put out by companies. That’s just a sliver of the type of insider trading knowledge you can trade off of. There are all types of other insider info. For example if you work at the FDA and know in advance what drugs are about to be approved/rejected. Also I tried your app and the prompt it gives is... not even close to insider info “ Regeneron Pharmaceuticals Inc is an integrated biopharmaceutical company. It discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions.” I fail to see how this is helpful info? Now if on the other hand it said “the company discovered a COVID drug in final approval with FDA”, that would be much easier to trade on.

bko 7y ago
Look below the chart, you get their financial statements and metrics, including the ones are in the time span you're trying to predict.
- lonelappde 7y ago
  that's all info that corresponds to guidance given in advance. It's slightly useful but not substantial info like a regulatory ruling or a pandemic.
  - andreilys 7y ago
    Yep exactly. Knowing the right future information can be insanely profitable. No matter what clickbait headline Matt Levine can come up with.
komali2 7y ago
> Did you actually read the article? This is a verbatim example of not assuming good faith in the guidelines for this site

Gys 7y ago

This post [0] in a related disccusion yesterday refers to research in 2004 [1] that clearly concludes senators did better trades than the index. But maybe times have changed. Or senators. [0] https://news.ycombinator.com/item?id=22837708 https://news.ycombinator.com/item?id=22837708 [1] https://projects.iq.harvard.edu/files/gov2126/files/ziobrowski_2004.pdf https://projects.iq.harvard.edu/files/gov2126/files/ziobrows...

bko 7y ago
I've heard about this study but haven't read it carefully. My problem with these studies is that their methods of analysis are overly complicated I'm not knowledgeable enough to know if the results are being managed. The range is from 1993-1998 while this was published in 2004. I'm not sure why that range was selected. Also, consider the universe: > Initially, we begin with 6,052 transactions. Before analysis we apply several screens to the data. Only U.S. common stocks are included in the study. These screens eliminate, among other things, all preferred stock, ADRs, REITs, foreign stocks, and mutual funds. We also eliminate all initial public offerings (IPOs) from the sample.2 In total, 360 observations are eliminated for the reasons given above. Among the surviving transactions, approximately 59% of the stocks are listed on the NYSE, 40% are traded on the NASDAQ, and about 1% are listed on the ASE. Why eliminate those other things? Would the conclusion have changed if they had been included? > As indicated previously, Senators report transaction amounts only within broad ranges. Ranges are as follows: $1,001 to $15,000 $15,001 to $50,000 $50,001 to $100,000 $100,001 to $250,000 $250,001 to $500,000 $500,001 to $1,000,000 over $1,000,000 And from the paper: > As before, we again estimate the value of their trades using the midpoint of the range reported by the Senators for all transactions less than $250,000. For all transactions above $250,000, we assume a transaction size equal to $250,000. Why floor it at 250? Why not keep the midpoint, at least for 250 - 500 and 500 - 1mm? I also thought it was odd to look at two portfolios, one of buys and one of sells. If the buys outperformed, but sells were a lot larger, then its not a good strategy on the whole. That's before we even get to the performance measure used. Think could all be above the board and decided upon prior to actually crunching the numbers. But there are too many things here for me to definitively buy the narrative.

awinder 7y ago

I can’t tell because the post source is hugged to death but I’m just speculating that this is utilizing sec form 4 data or similar sources? There can be some interesting signal there that you could incorporate into a trading strategy but that’s mostly semantic and another story, I totally agree with you broadly. It will be a minor miracle if there isn’t fraud that washes out with a market crisis of this scope, but I’ll be amazed if the grand majority of trading isn’t above board. Really enjoyed your medium series btw!

mettamage 7y ago

This sounds like a fun game! There was at one point also this game called chartgame.com, the interface when the site was still old is subtly (but importantly) different from now [1]. The most fun thing IMO was that you'd see the company name after you were done with that particular company. It was made to see whether technical analysis worked. On another note, I was wondering how you got the data. So I opened my Chrome dev tools to see. I'll be checking financialmodelingprep.com out! [1] https://www.youtube.com/watch?v=lJAw_LXcUgY https://www.youtube.com/watch?v=lJAw_LXcUgY -- someone playing the old version

bko 7y ago
Financial Modeling Prep is amazing. Incredible that its free and well documented. My proudest github star [0] is from the creator of Financial Modeling Prep, Antoine Vulcain, who liked my site. [0] https://github.com/breeko/stox https://github.com/breeko/stox

api 7y ago

It would certainly be possible for them to abuse their position in this way, but there may be enough counter motivations. Most are already wealthy, so they are not going to be hungry for money. They are also fearful of negative publicity or information that could help a political opponent. Abusing their position to trade stocks could easily end up in an opponent's attack ad.

lonelappde 7y ago
People don't get wealthy without being hungry for money. Money hunger isn't satiated by money.

mlinsey 7y ago

I feel like most quarters won't necessarily give easy opportunities for insider trading, because stock prices over the course of the quarter are greatly moved by macro trends that are hard to forecast. But there are definitely some short-term events that move a stock in fairly predictable ways (an acquisition offer, an imminent recall, earnings coming in way way above or below guidance, etc). With a bit of leverage it's easy to just wait and make plenty of money off of particular events rather than maintaining a continuous insider-trading portfolio. Of course this strategy makes your trades much more suspicious too...

kelekekkkd8 7y ago

So if no one can play the market successfully, it’s socialism propping up the rich and forced austerity for the poor to maintain the “story”, as Trump calls it, romantic nonsense as Thiel writes about it, propping up the imagined belief we need elites pushing us forward. Elite wealth managers alone, btw. A minority of rich actually have marketable skills. Has nothing to do with business acumen (math models have shown one time success was luck not skill and continued success is simply bought; hi Bloomberg) So yeah let’s keep playing this game, guys! Physics I’m sure shows somewhere this was predetermined by the motion of the stars and matter we can’t see. Why NOT subject the mathematical majority to a system that (conveniently) won’t educate them well enough to even offer a chance at falsifying the underlying presumptions!

wtf_is_up 7y ago
Cope.

take_a_breath 7y ago

All information is not created equal. Classified briefings on a virus that may shutdown entire sectors of the economy isn’t the same as unemployment numbers. Everyone knew a ton of people were going to be laid off. From your blog: “Here’s a trade from David Perdue, the great Senator of Georgia. He actually made nearly half the trades of our dataset, and it makes sense since he’s worth $15.8 million” Why would it makes sense for him to make half the trades because he is worth $15.8 million? Plenty of Senators are worth more than that.

capableweb 7y ago
> he’s worth $15.8 million On a unrelated note, how the hell can a senator sit on so much and be worth so much? Aren't they supposed to have the public in their main interest? Sitting on all those assets looks really suspicious. Seems they care more about themselves than their community/country.
- seibelj 7y ago
  Why can’t you be rich and also care about your community? You don’t start life as a senator, you have a career before it.
  - capableweb 7y ago
    Because you get rich by not distributing what you earn, back into the economy/communities, but by hoarding. Someone who is worth $15.8 million is clearly hoarding and not utilizing the funds to improve what's around them.
    - RHSeeger 7y ago
      Your statement is overly broad and untrue. Someone who is worth 15.8 million could very easily be making enough to be worth 200 million but giving a lot to charity. For Perdue's case, he appears to average around 2% of his earnings to charity, which isn't an amazing amount, but it's not negligible either. But the point is that how much someone is worth doesn't "clearly" indicate what they are doing with their money. There are plenty of very rich folks that give / have given a lot back to society.

vladimirralev 7y ago

Let's consider a recent example. The massive Fed/Treasury coordinated $2T+ bailout from last week. This thing came as a surprise to most us. Prior to this we saw 10 days of "weird" bullish activity. Market was going up on incredibly bad news, some banks such as Goldman advised high-end clients to buy stocks for unknown reason. And then the news came. Later it was revealed that this SPV had wide congressional support. So 1000s of officials from the White House, Fed, Treasury dept and Congress were sitting on this info for 2 weeks. Now add their staff that worked on getting this done, lawyers, accountants, advisors, regulators, oh and BlackRock who executed the deal. There is exactly zero chance this piece of info wasn't leaked to all high end clients in the banks at least a week in advance.

bko 7y ago
I don't doubt it was leaked. But even with that information, unprecedented Fed support was speculated for some time but crystalized on March 3rd when Fed lowered rates 0.5%. the market still went down since then. Maybe it didn't go down as much as it would have had the Fed not intervened, but that's difficult to profit from. Market recovered a bit and you can point to another Fed policy in hindsight and say this caused the rebound.
- cheez 7y ago
  First was expected, second was a surprise.
  - deleted 7y ago
    [deleted]

daniel-levin 7y ago

I have experience working on civil investigations of financial crime. It takes a very long time to prosecute white collar crime of all kinds. Especially insider trading. The most effective technique is to overwhelm the accused with reports containing facts that don’t constitute cold, hard evidence of crime, and then wait for them to buckle under the pressure and admit guilt

deleted 7y ago

[deleted]

ptbello 7y ago

> I recently analyzed the trading activity of Senators [0] How is this relevant? Surely any senator knowingly engaging in insider trading wouldn't do so directly. They would get someone else to profit from the info and give back to them in either untraceable or legit ways.

philipodonnell 7y ago
Insider trading By elected officials isn’t against the law. There’s no reason for them to hide it. There have been several recent examples of senators openly insider training and no repercussions for being caught.
- malcolmxtucker 7y ago
  Optics matter, that's enough of a reason to hide it.

AznHisoka 7y ago

I agree that insider trading is less prevalent than people think, simply because lots of people love to believe in conspiracy theories, and put on a tin foil hat. However, in the Bloomberg article you mentioned, it was cited that the hackers had a 77% success rate. Any serious investor would tell you that's an incredibly high success rate, as it's impossible to be 100% right all the time. If you had that hit rate, you're almost guaranteed to beat the index by a very large margin. Lastly, it's possible to still have insider info, and not make money on the trade. That doesn't make it legal, though, does it? I think that's still insider trading - it's just making the wrong bet. If I had access to all insider info, I'd be super picky. Ignore 99% of what I hear (ie 16M Americans are unemployed, big whoop! everyone knows), and only trade on the 1% of info that will almost certainly move the markets (ie COVID-19 will shutdown entire cities). Extremely difficult to do if you love trading, but the optimal strategy.

nosuchthing 7y ago

If only we could trace insider trades using some sort of big data system. Hmm. https://www.reuters.com/article/us-column-insidertrading-saft/insider-trading-all-the-cool-kids-are-doing-it-idUSBRE93A13K20130411 https://www.reuters.com/article/us-column-insidertrading-saf... KID TRADERS Using data on a half a million accounts from Finland from 1995 to 2010, the study came to a surprising conclusion: accounts set up to benefit kids 10 years and under did really well at stock picking, and did especially well just before mergers, earnings releases and events that generate big stock moves. The analysis was possible since Finland makes available unusually detailed information about the identities of investors. “When guardians trade through under-aged accounts, there is a relatively high probability that they are trading on private information,” the authors, Henk Berkman, at University of Auckland, Paul Koch at the University of Kansas and Joakim Westerholm at the University of Sydney, conclude in a paper slated to be published in the Journal of Finance. The gap between the junior set and typical accounts held by adults was striking: in the day following trades made by kids, their accounts outperformed the adult accounts by 9 basis points. Ahead of major earnings announcements, the kids chose correctly whether to buy or sell 57 percent of the time and beat their elders by 1.1 percent in the following day. It gets even better - at least for junior. On trades made the day ahead of a merger announcement, juvenile portfolios outperformed by 12 percent the following day, and made the right decision to buy or sell an uncanny 72 percent of the time. The rest of the market, by the way, chose correctly whether to buy or sell only 50 percent of the time. This is probably not all due to inside knowledge, according to the study. The guardians tended to be richer and may simply have been more successful at investing, the authors argue, due perhaps to higher intelligence or an advantage in obtaining legal, but valuable information. Even so, the fact that the juvenile accounts outperformed ahead of mergers while the guardians’ accounts did not implies that the adults were smart enough to know better than to trade on inside knowledge in an easily traceable way.

Endlessly 7y ago

“knowing the future isn't that helpful” — while true, it’s irrelevant as it relates to if the behavior is criminal insider trading activity, even if the trade resulted in no gains, it’s still criminal behavior.