Predictive Power of Insider Trading on the Swedish Stock Market : An Analysis Using Portfolio Backtesting, the Capital Asset Pricing Model, and the Fama-French Three-Factor Model

This study aims to evaluate the predictive power of insider trading on the Swedish Stock Exchange. Using data on insider transactions from 2016-08-01 to 2024-02-28 provided by the Swedish Financial Supervisory Authority (FI), the study forecasts future excess returns relative to the OMXSGI index benchmark. The focus is on the titles of insiders and the total amounts purchased. The methodology incorporates regression models, the Capital Asset Pricing Model (CAPM), and the Fama-French three-factor model to assess the performance of using insider trading data as a signal for a quantitative systematic long-only portfolio. The findings indicate that while aggregated insider purchases and insider titles have some predictive power regarding future positive returns, the results vary with the forecast horizon and are not consistently significant. The study also examines the efficient market hypothesis by testing whether public insider trading information enables investors to achieve abnormal returns. Results suggest that although certain insider trades correlate with significant price adjustments, the overall market efficiency is upheld. These insights contribute to the ongoing debate on the efficient market theory and enhance the understanding of the predictive power of insider behaviours.