cluster buy post drawdown
What it checks
When 3 or more insiders buy their own stock within 30 days AND the stock is at least 20% below its 90-day high, it is the highest-conviction insider signal (insiders are buying weakness, not chasing momentum). Long for 2-6 months.
Mechanism
Cohen-Malloy-Pomorski 2012 document that the strongest insider-purchase drift comes from non-routine clusters, and the subset where insiders are buying AFTER a price drawdown is the highest-information leg. A routine insider buys in all regimes; a conviction insider buys when prices are down. Drawdown-conditioned clusters strip out the routine noise that dominates single-insider filings.
Signal rule
>=3 distinct insiders buying (Form 4 code='P') in trailing 30d AND close <= -20% vs trailing 90d high on T+1 fires LONG, hold 60/90/180d.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
sec_insider_tradesForm-4 insider transactions with role, size, and trade direction.
Expected edge
- Paper alpha
- +6 to +10% over 6mo
- Paper window
- T+1 to T+180d
Cohen-Malloy-Pomorski 2012; +6 to +10% over 6mo on contrarian-cluster subset.
Related families
insider form4Insider & FlowLakonishok-Lee 2001, Cohen-Malloy-Pomorski 2012: corroborated insider purchases (Form 4 transaction_code='P') from multiple insiders within a short window are the single most-predictive insider signal โ ~6%/year alpha over 6-12 months. Single-insider buys are noisy; cluster buys (3+ distinct insiders, or a single buy > $1M from CEO/CFO) are not. Long for 60 days on cluster buys; long for 30 days on a single $1M+ transaction. Sales are deliberately ignored โ they're confounded by liquidity, diversification, and options expiry.
form4 cluster anomalyInsider & FlowAnomaly-tail Form 4 insider PURCHASE clusters (>=4 distinct insiders within 30 days, or >=3 insiders with aggregate dollar value >= $2M) strip routine-liquidity noise that dominates single-insider buys. Long the issuer 60-180d post-cluster.
form4 cfo onlyInsider & FlowCFOs have direct line-of-sight into revenue recognition, working-capital quality, off-balance-sheet exposures. Their Form-4 purchases are systematically more informative than CEO trades.
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