Trading on Insider Scoop Works–Who Would have Guessed?
The Value of Private Information in Investment Research: Do Company On-Site Visits Affect the Trading Patterns and Performance of Professional Investors?
- Switzer and Keushgerian
- A version of the paper can be found here.
- Want a summary of academic papers with alpha? Check out our free Academic Alpha Database!
This paper looks at relationships between managerial characteristics and actions on the performance, management fees, and systematic risk of US equity investment management firms during the period 2008 through 2011, focusing on the impact of company on-site visits. Company on-site visits significantly enhance performance, management fees, and portfolio turnover. On-site visits are also positively related to employee equity ownership while the latter is inversely related to portfolio turnover. This supports the agency hypothesis that managers with greater personal stakes in their companies invest more in collecting non-public information for longer-term commitments.
Brockhouse Cooper documentation of on-site visits by company analysts.
Company visits are associated with higher alpha…are they discussing sports in the boardroom…
- Find ways to collect private information during company visits.
- Avoid SEC oversight and insider trading rules.
- Tell your friends how smart you are and show off your fancy car.
- The majority of financial analysts who conduct on-site visits are not insider trading–they are simply ensuring that managers are not wasting their capital (we hope this is what the analysts are doing!).
- The “perception” problem associated with on-site visits (the world assumes you are there to get inside scoop), is so strong one needs to think twice about conducting on-site visits. A simple visit to “kick the tires” might end up as a Wells notice from the SEC. Yikes!
Any good stories experienced during on-site company due diligence?
Note: This site provides NO information on our value investing ETFs or our momentum investing ETFs. Please refer to this site.
Join thousands of other readers and subscribe to our blog.
Please remember that past performance is not an indicator of future results. Please read our full disclosures. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.
Definitions of common statistics used in our analysis are available here (towards the bottom)