2iQ’s data is used by institutional investors and analysts across the world to assess stocks, analyse trends and strengthen their research.
Joel Coriat, Head of Quant Research at 2iQ Research, has shared some thoughts on a recent report from Macquarie Research that uses 2iQ’s data.
I read a recent sell-side research report from Macquarie Research on insider transactions. The company used 2iQ Research insider transaction data with a focus on the Australian market and as a way of conducting some very interesting event studies globally.
The main takeaway confirmed the value-adding nature of insider transactions in Australia, as well as in Asia excl. Japan
Further findings on Macquarie Research’s detailed research of Australia was very similar to our own experience with the data and their conclusion is, as expected, that some transactions are more relevant than others.
Macquarie Research used several factors to differentiate transactions, some of which we already use:
- Top level directors: Trades by top level directors have the greatest impact
- Price momentum: If directors trade in line with a stock’s momentum (buying high) this further supports the momentum however trade in the opposite direction (selling high) can be a catalyst for the momentum to change.
- Size of trade: The size of the trade relative to the director’s current holdings is more informative
- Small cap stocks: The above effects are stronger in small caps.
And one we like to add to this analysis:
- Consensus recommendation: when directors sell market darlings, the stocks have historically underperformed by 1.6% over the next 60 days.
This is a very interesting effect and we always suspected that analyst behaviours had a strong impact on the alpha level of insider transactions. Conditional to access to high quality global analyst datasets, we look forward to doing more research on this!
Macquarie Research built a very robust methodology based on those observations, not unlike our own, using a regression framework to establish expected alpha for each transaction and building portfolios with stocks with the most significant transactions.
For Australia, Macquarie Research achieves an annualised return of 11.1% with an IR of 0.69 while our EnhancedRatio achieved in Australia an annualised return of 14.4% with an IR of 0.75.
Macquarie Research’s analysts further improved their strategy by combining their baseline alpha model with an overlay from their insider transaction methodology. They achieve a backtested annualised return of 15.6% with an IR of 0.72 a significant improvement over the baseline alpha model. This highlights the orthogonal and generally alpha additive nature of the 2iq Research global insider transaction data.
Macquarie Research also provided very detailed event study details with different conditioning for Australian Small Cap Universe, MSCI Europe, MSCI USA. This is a very detailed study and highly recommended read.