SEC Insider Information

Project Leads: Eli Grubbs, Justin Paul

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How True Is This?

BOOKMARK SLIDE:

What is the goal of our project

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• Justin

The goal was to see investigate that feeling most people have that insiders make bank trading on insider information, while technicalities save them from jail because “Your Honor, it wasn’t actually insider information”

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Project Goals

Investigate the trading behavior of company insiders

• When do they buy/sell?
• Return rates?
• How do insider trading patterns during a crash compare to others?

BOOKMARK SLIDE:

Describe Dataset

• ELi

Need summary stats of data

QTR 1 2020 SEC Form 4 Filings

Each filing details the CEO’s, 10% Owners, Board of Director Members, or Other applicable people working for company XX, that TRADE the stock of XX. (The people who see the full inner workings of the company).

23,000 filings. Unfortunately, only part of the alphabet, (NO TESLA).

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Dataset

• Data scraped from the Q1 2020 SEC Filing
• 23,000 filings (subset of the full filings for that period)
• Filings details the CEO’s, 10% Owners, Board of Director Members, or other applicable people working for company XX, that TRADE the stock of XX.

Things that make you go hmmmm

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Cleaning Methods

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Non Tabular Data:

Data Transformations had to be done for each specific question. Had to think about how to perform each one

Weird Values:

NA -> “”

393 filings with transaction outside our date range

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Example:

The Analysis

BOOKMARK SLIDE:

Results

• You Guys

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(Insert a lot of slides between this and the next BOOKMARK SLIDE)

1. 6 Month Returns
2. Show Acq/Disp Graph (motivation for everything)
3. ​

Insiders, on average, had much higher 6 month returns than market.

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Riley

• Insider graph(ticker) => high variance and skewed right
• Performed a two-sided Welch’s t-test. p-value=4.006022003462286e-14
• This suggests a significant difference in the ability of insiders to gain higher returns than the overall market

No Relation Between Amount Transacted and Returns

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• Only looked at acquisitions
• so greater returns are always better
• No Correlation between amounts and returns
• true for 3mo and 6mo returns

Correlation Matrix for Amount and 6mo Returns:

6mo Returns vs Amount Acquired:

No correlation between % change in ownership and return

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Percent change in ownership is (shares traded) / (shares owned prior)

We wanted to see if trades that significantly increase position means insiders have a strong conviction

Issue with some of the data as a sizable chunk of insider forms are filled out in a consistent manner

Insiders Buy More as Pandemic Hits

(while Market Sells Out)

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• Acquisitions/Dispositions track pretty well until 03/2020 → COVID
• Around March 2020 Disposition count went way down
• Behavior changes as global pandemic hits

Transaction Count over Time:

Acquisitions

Dispositions

Acquisition: purchasing stock

Disposition: selling stock

Average 6-month market return rates were uniformly higher during the second time period.

Histogram of the count of unique insiders who achieved a given average return rate, from 31 December 2019 to 26 February 2020, inclusive.

Histogram of the count of unique insiders who achieved a given average return rate, from 27 February 2020 to 31 March 2020, inclusive.

As expected, but this gives us a frame of reference for the next slide

Insider Trades Histogram:

Same Shift As Market Histogram

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Histogram of the count of unique insiders who achieved a given average return rate, from 31 December 2019 to 26 February 2020, inclusive.

Histogram of the count of unique insiders who achieved a given average return rate, from 27 February 2020 to 31 March 2020, inclusive.

Insiders understood when to acquire at market dips.

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• Focused on the top five average returning insiders.
• Blue lines are acquisitions by insiders.
• Non-Blue lines are when the five most consistent insiders made acquisitions.
• Distribution of returns of people who bought at the bottom

Most Winning

Insiders

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• Abraham Allison outperformed all other organizations/people in the data set by several magnitudes.
• Other top performers had a similar percent return.

Allison Abraham Doesn't Lose

• Allison Abraham is the Chairman of the Board of Overstock.
• Overstock is a discount furniture and home store
• Board of Directors member since 2002

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Returns

Date of Transaction

Buying at the market bottom yields the best return

Insiders who bought at the bottom had a better return than the market.

Reconstructing a dollar weighted portfolio of insider trades has a higher return than buying into SPY

Best Overall Performing Insiders

• Allison H. Abraham is still within top 10 insiders and within top 2 individuals.

Do Insiders submit more than one form to appear less suspicious?

• We looked at amount acquired or disposed by day based on the unique link of each form.
• We then looked at the amount acquired or disposed per day based on the unique Insider name.
• This would allow us to see if a specific insider traded more on one day but through multiple forms by comparing the two graphs.
• We did not find a significant difference in the shapes of the graphs and therefore concluded that there was not a significant difference between the two graphs thus not worth looking deeper into.

The number of insiders trading on a given day has peaked:

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• Near New Year’s Day (January 2020)

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• Near the onset of the pandemic (March 2020)

Graph of the count of unique insiders who made a transaction on a given day, from 31 December 2019 to 26 February 2020, inclusive.

Graph of the count of unique insiders who made a transaction on a given day, from 27 February 2020 to 31 March 2020, inclusive.

Reflection

More/Better Data:

Only 1 Quarter of data. Not enough to draw conclusions. The Data Source did little to validate data.

Jumping In Feet First:

Spent too little time equipping ourselves with the tools we needed, especially dealing with natively non-tabular data

Utilize What We Know:

If we could, the visualizations we made might have turned out better if we knew what we know now

Thank You