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Investment Intelligence from Insider Trading By H. Nejat Seyhun, Cambridge, MA: MIT Press, 1998, pp. 402, $29.95.
Can insider-trading signals provide valuable investment information? Most business economists know that corporate insiders have more and better quality information about their companies' future than outside investors. The question is whether the publicly available information on how those insiders use that information in their own stock trades can profit outside investors? The author's answer is that insider trading information is valuable, more valuable that several other valuation measures, and can be used to improve investment returns.
Make no mistake, this is not a get rich quick stock system by a fly-by-night, self-proclaimed guru. The book is a scholarly study, from a foremost publisher, by a leading academic expert on insider stock trading. The study is based on a massive data set going back twenty-one years, covering all of the reported insider transactions of all publicly traded firms in the United States. The author is Chair of Finance and Professor at the University of Michigan. Other business economists might recognize his work on the "January effect" if they are interested in modeling day or monthly trading patterns.
Investment Intelligence begins at ground zero for each subject. For example, the first section of the introduction is thoughtfully titled, "Why is there a need for a book on insider trading?" One reason is to answer the question posed in the first sentence of this review. Another reason is to understand what other information can be...