The main objective of this paper is the evaluation of the investment value of expert strategies in stock investment with regard to higher profits than the overall market. As a first step, Section 2 will briefly characterize the rationale of expert strategies and derive the main benefits financial experts can offer: more or better information.
In order to investigate whether high profits are a result of superior information and skills supplied by experts – or simply short-term anomalies – Section 3 is devoted to a detailed assess-ment of the theoretical foundations behind expert strategies. Here, the efficient market hypothesis delivers an important instrument to analyze this highly practical issue within an academic framework. In general, experts provide different types of information: public and private information. Thus, the different degrees of market efficiency elaborated in Section 3 require a decomposition of the widely-used term “expert” into two important agents on financial markets: financial analysts and legal insiders. This distinction follows the different types of information provided by experts and consequently the informational advantage investors may gain from implementing their advice. After the myth of expert strategies has been itemized into both its main agents and core theoretical aspects, Section 5 will give an overview of prior empirical work on the contribution of analysts and legal insiders to information efficiency and trading profits. Especially the latter point is crucial for investors and the main practical finding of this paper. Section 6 will take a closer look at the role of legal insiders in the German stock market by applying simple techniques derived from the prior section. The paper closes with a short conclusion in Section 7 that merges the theoretical implications and the most important practical findings of this paper to finally answer the question: Can expert strategies be a reliable source to beat the market? And, if so, how can investors participate?
Inhaltsverzeichnis (Table of Contents)
- Introduction
- The rationale of expert strategies
- Market efficiency and return predictability
- Experts in financial markets
- Legal insiders
- Financial analysts
- Empirical evidence on the impact of experts
- Insider trades and trading profits: Do insiders earn more?
- Analyst forecasts and recommendations
- Empirical analysis of insider trading in Germany
- Empirical questions for the German market
- Data and measurement of aggregated insider trading
- Empirical results
- Conclusive remarks
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper examines the investment value of expert strategies in stock investment with the goal of determining whether they can consistently generate higher returns than the overall market. The analysis explores the rationale behind expert strategies, focusing on the unique information advantages that financial experts may possess. The paper further delves into the theoretical framework of market efficiency and return predictability, examining the potential for expert strategies to exploit market anomalies. Additionally, it investigates the role of legal insiders and financial analysts as key players in the financial market. Finally, the paper presents an empirical analysis of insider trading in Germany, investigating the impact of insider actions on market efficiency and returns.
- The value of expert strategies in stock investment
- The role of information in financial markets
- Market efficiency and return predictability
- The influence of legal insiders and financial analysts
- Empirical evidence of insider trading in Germany
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: The paper introduces the main objective of evaluating the investment value of expert strategies in generating higher stock market returns. It outlines the paper's structure and key topics, including the rationale of expert strategies, market efficiency, and the role of legal insiders and financial analysts.
- The rationale of expert strategies: This section explains the core idea behind expert strategies, emphasizing the belief that experts possess superior information that can lead to higher investment returns. It contrasts expert strategies with other investment approaches like contrarian or momentum strategies and highlights the importance of expert information.
- Market efficiency and return predictability: This chapter explores the theoretical foundations of expert strategies by examining the Efficient Market Hypothesis (EMH). The EMH serves as a framework for analyzing whether high profits are a result of expert information or short-term market anomalies.
- Experts in financial markets: This section delves into the different types of experts in financial markets, focusing on legal insiders and financial analysts. It discusses the distinct types of information these experts provide and their potential impact on investors.
- Empirical evidence on the impact of experts: This chapter presents a review of existing empirical studies on the contribution of analysts and legal insiders to market efficiency and trading profits. It particularly focuses on the relationship between insider trades and trading profits, a key concern for investors.
- Empirical analysis of insider trading in Germany: This section focuses on the role of legal insiders in the German stock market. It explores the data used for the analysis and presents the empirical findings on insider trading activities.
Schlüsselwörter (Keywords)
This paper explores the field of financial markets and expert strategies, focusing on the relationship between information, market efficiency, and return predictability. Key themes include the impact of legal insiders and financial analysts on trading profits and market efficiency, with a particular emphasis on empirical evidence and the German stock market. The study aims to provide insights into the potential of expert strategies to generate higher returns, analyzing the role of different types of information and the implications of market efficiency.
- Quote paper
- Sebastian Schrön (Author), 2014, Expert strategies. A reliable source to beat the market?, Munich, GRIN Verlag, https://www.grin.com/document/283629
