The Insider Trading Anomaly Lives In The US And Abroad: Profitability of Insider Trading in Netherlands

The insider trading anomaly has been documented in the US stock market for more than 40 years. When there’s a consensus among insiders, returns are especially high. Former academicians Josef Lakonishok and Inmoo Lee, who now both work in the private sector, calculated insider trading returns from 1975 to 1995 and found 7.7% excess raw returns and 4.8% risk adjusted returns. 

This type of result isn’t limited to the US markets. They also hold true in other parts of the world. For example, a 2003 study by Dutch scientists show evidence for the profitability of insider trading in the Netherlands

Dutch insiders have been required to report their transactions on Euronext Amsterdam since April 1999, so the study is based on pretty recent insider trading data. Insiders appear to be contrarian investors in the Netherlands as well; they buy after negative returns and they sell after a positive performance. The study found that during the first 20 trading days after the transaction, insider purchases returned 2.23% and insider sales returned -1.91%. These abnormal returns are statistically significant. 

Profitability of insider trading anomaly

Source: Biesta, Doeswijk, and Donker (2003)

But the buy and hold abnormal returns are more significant. The portfolio of insider purchases had a cumulative excess return of 11.3% after 6 months, whereas the portfolio of insider sales had -2.4% in excess returns during the same time period. However, these results were in comparison to the total market returns and didn’t adjust for size or value effects. When the authors adjusted these two effects, the abnormal return of the purchase portfolio dropped to 8.0% but the abnormal return of insider sales portfolio increased to -7.3%. The results were also based on a 6 month holding period, and the annualized abnormal returns were in double digits.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!