factor · Insider
Insider activity treats SEC Form 4 filings as the strongest informed-trader signal available to the public. CEOs and CFOs buying with their own money — especially in clusters of multiple insiders within a short window — predict positive returns. Clustered selling by the same group predicts negative returns.
A CEO's stock is the worst-diversified position in their personal balance sheet. They already get RSU grants every year. Buying more — with cash — when they're months ahead of the market on internal forecasts is a strong directional bet. The signal degrades when (a) it's a single token purchase from a single low-rank insider, (b) it's a 10b5-1 plan filed months earlier, (c) the dollar amount is small relative to the insider's net worth. The factor weights for all three: role, cluster size, dollar significance, and plan-vs-discretionary.
inputs · SEC Form 4 trades over a recent rolling window
· role classification (executive vs director vs 10% holder)
· dollar size normalised by market cap
· discretionary vs 10b5-1 plan flag
ideas · sign of net insider activity, weighted by role × size
· amplification when multiple distinct insiders trade
the same direction inside a tight cluster window
output · cross-sectional standardised scoreRecipe-level constants — exact window lengths, role weight magnitudes, the cluster amplifier's functional form — are calibrated and proprietary. What's public: the inputs (Form 4, role, dollar size, plan flag), the structural intuition (cluster amplifies isolated noise), and the academic anchors (Seyhun 1998 + Cohen-Malloy-Pomorski 2012). Plan trades (10b5-1) are deweighted because they were arranged months earlier and carry no timing information.
Form 4 filings come from SEC EDGAR XBRL within hours of acceptance. The insider cron runs Mondays 12:15 UTC for the weekly aggregation, plus an inline refresh during the 06:00 UTC daily update for any tickers with new filings. Role classification (CEO / CFO / Director / 10% holder) is parsed from the relationship XML element. Plan-trade flag comes from the rule10b5_1Indicator field. Trades older than 90 days drop out of the calculation — the predictive content is concentrated in the first quarter after filing.
Insider clustering interacts cleanly with NLP — when officers are buying AND the latest 10-K MD&A reads optimistic (low Loughran-McDonald negative tone), the INSIDER + NARRATIVE confluence pattern fires bullish. The opposite — clustered selling plus pessimistic MD&A tone — fires the INSIDER + NARRATIVE bearish pattern. Insider also reinforces PEAD: a beat plus C-suite buying within 30 days of the announcement is a high-conviction setup.
Three honest limitations. (1) The signal is sample-limited for low-coverage tickers — many small-cap names see one Form 4 per year, so the cluster multiplier never fires. (2) Tax-driven selling masquerades as bearish — a CEO selling 10% of their stake every year on the same date is portfolio rebalancing, not a forecast, and our 10b5-1 detection is imperfect on plans filed before 2023 (the SEC tightened plan disclosure rules then). (3) The signal lags during M&A speculation — insiders trade restricted ahead of deal announcements, so we see no signal precisely when the stock is about to move.
Every ticker page shows the per-factor decomposition. The Insider score is one of thirteen composing the 0–100 the composite score.