Singapore Insider Trading News

Based on Lakonishok and Lee's conclusion, trades are informative for longer investment periods. There are many trades by insiders everyday, and they have their own reasons for buying or selling. Indeed on some days, some insiders in Company X may be selling while others are buying.

For example, SingTel director and SIA executive chairman Cheong Choong Kong was selling SingTel shares in late June and switching to DBS Group. SingTels chief executive Lee Hsien Yang and chief financial officer Chua Sock Koong, however, were buying during that time.

Similarly, in February, Beyonics' substantial shareholder Tiong Swee Eng sold nearly 10 million of his shares. The companys CEO Goh Chan Peng, on the other hand, purchased 100,000 shares during that same period. So it can be confusing. Lakonishok and Lee provided some clues.

They found that companies with extensive purchases by insiders over the past six months outperformed companies with extensive sales. They also suggested that a strong buy signal occurs when at least three different insiders are trading sizeable amounts.

But overall, the development of implementable investment strategies based on trading information of insiders is not straightforward. They may result in poor investment performance.

Aggregate trading as a tool However, aggregate trading by insiders appears to be a good signal for market movements for investment horizons of about three months. I used the Insiders Sentiment Index compiled by Asia Insider as a gauge of such aggregate trades.

In its raw form, the index swings sharply from month to month. So I smoothed it by taking a four-week moving average and a 10-week moving average. If you enter the market when the index is +20 and short it when it is -20, you would lose money two-thirds of the time if your investment horizon is only a week or a month.

However, the usefulness of the 10-week moving average insider sentiment index as a market-timing tool improves significantly if your investment horizon is three months. Assuming you buy the STI every time the index hits +20 and sell when it is -20, you would make money 70 per cent of the time,

The cumulative return from June 1999 till now would amount to 230 per cent. The average return per trade is 4.8 per cent, excluding transaction costs. So perhaps, instead of monitoring individual companies insider transactions, you should look more at the aggregate trading by insiders to time your market entry and exit.