A research innovation from the University of Melbourne is making it easier for researchers and investigators to scrutinise insider trading in the USA.
Dr Attila Balogh from the Department of Finance, University of Melbourne, has created a database of all insider trading transactions which is free to use and access, and is more transparent than existing solutions.
How does it work?
When an executive or director in the USA buys or sells stocks in their own company, they must report it to the Security Exchange Commission (SEC) within two days. This law is in place to stop executives making money using knowledge about decisions their company will make in the future, commonly known as illegal insider trading.
SEC makes these reports available to the public, but the data is extensive and complicated.
“To help researchers analyse the data, third parties aggregate it and sell it as databases, but not without first sorting and compiling it in their own way. This can be problematic because it means researchers, besides having to pay, are using data that has been manipulated,” said Dr Balogh.
Dr Balogh also noted that the data manipulation and aggregation processes are opaque and historical records could be altered by the commercial database providers over time.
“To overcome these limitations, I created a database that is created from original regulatory filings. It is updated daily and includes all information reported by insiders without alteration,” said Dr Balogh.
“My datasets offer a transparent solution, and I’m also hoping there could be uses for this outside academia and finance to improve corporate governance and keeping managers honest,” said Dr Balogh.
Dr Balogh has published all the details about the database on Nature.com, including how to access it and how he created it using Python programming.
The insider trading database is part of the larger project, “Advancing open science in financial economics” with other datasets available here.