Insider-Activitytier 2pilot

`insider routine decoder`

cadence: Dailydata: low

2012

Cohen, Malloy & Pomorski 2012, Journal of Finance, 'Decoding Inside Information'

What it checks

Many insider trades are clockwork 10b5-1 plans with zero info. Filter them out using trade-date entropy; only opportunistic cluster buys predict +82 bps/month.

Mechanism

Each insider has a 'routine' footprint (monthly/quarterly 10b5-1 clockwork buys) vs 'opportunistic' trades. Filter OUT routine insiders — the remaining cluster buys predict 82bps/month. Routine alone is zero.

Signal rule

trade-date entropy per insider over 3y; exclude top-decile-routine; then run cluster filter

Data dependencies

sec_insider_trades (≥3y history)
Form-4 insider transactions with role, size, and trade direction.

Expected edge

Paper alpha: 82bps/month VW alpha (Cohen-Malloy-Pomorski 2012)
Paper window: 1996-2009

82bps/month VW alpha on opportunistic-filtered (doubles signal-to-noise)

Illustrative pattern only

NOT a backtest

Illustrative pattern only — see /app for live backtests and the actual current equity curve.

Example tickers where this is likely to fire

BAC C GS

Illustrative only — the signal fires based on the live data, not a fixed list.

Related families

insider form4Insider-Activity

Lakonishok-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 — ~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 — they're confounded by liquidity, diversification, and options expiry.

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insider routine decoder