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Continuous overreaction, insiders trading activities and momentum strategies

Introduction

Empirical findings and discussions

Insider trading refined momentum strategies

Adjust the size and BM factors

Long-term reversal

Conclusions

References

Jihong Xiang, Jia He , Min Cao:

Continuous overreaction, insiders trading activities and momentum strategies

Keywords:Analisi Tecnica Avanzata ;Modelli Econometrici; Insiders Trading

The paper investigates the influence and explanatory power of aggregate insiders trading activities on momentum trading strategies. We find that insiders trading activities can predict cross-sectional returns and can strengthen the naı¨ve momentum effects. The risk factors such as size and BM cannot explain the strong momentum effects in our refined momentum strategies. We interpret our findings as that the continuous overreaction causes the mediate term momentum effects and over pricing. In the long term, these overly priced stocks will be corrected with passing time. The correction of over pricing causes long-term reversals. © 2002 Elsevier Science B.V. All rights reserved.

Jihong Xiang, Jia He , Min Cao

Department of Finance, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong

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