Chen, along with his co-authors Lauren Cohen of Harvard Business School, Umit Gurun of the University of Texas at Dallas, Dong Lou of the London School of Economics and Christopher Malloy of Harvard Business School, identified which corporate insiders were being tracked based on what trading information portfolio managers downloaded off the site. Using the IP addresses connected with the download, they were able to identify the individual fund managers and compare their portfolio decisions with the behavior of the corporate insider they tracked.
They discovered that when a firm bought after a tracked insider did so, the stock outperformed the firms’ other purchases by an annualized abnormal return of 12 percent rate per year. These abnormal returns do not reverse but continue to accrue in following quarters. And when fund managers opted not to buy or sell when a tracked insider did so, the researchers noted, it implies that those insider trades “should have less predictive ability for future returns.”
via Study finds mutual fund managers use their networks for info on insider trades.
