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M. Ma, X. Martin, M. Ringgenberg, and G. Zhou: An Information Factor: What Are Skilled Investors Buying and Selling?

June 25, 2025

We construct a novel information factor (INFO) using the informed trades of corporate insiders, short sellers, and option traders. INFO strongly predicts future stock returns-a long-short portfolio formed on INFO earns monthly alphas of 1.07%, substantially outperforming existing strategies including momentum. INFO explains hedge fund returns in the time-series and cross-section. Moreover, funds with higher covariation between their returns and INFO outperform by 0.29% per month. The results support theoretical predictions that trading volume contains unique information that is not contained in prices.

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