Iikka Korhonen: This paper's aim is to detect insider trading on stock markets with an algorithm, and then test whether it is possible to earn excessive profits from trading strategies utilizing detected insider trading. Data from 2010 companies from the Asia-Pacific region are used in the empirical exercise.
The authors detect different phases of stock market movements and devise a trading strategy based on those. Moreover, the chosen strategy produces an annualized return of 336 percent per annum! Although it is plausible that at least in some stock markets and lesser-traded stocks such trading strategies might work, the authors do not convince me that their finding is necessarily linked to insider trading. There are any number of reasons why a stock might appreciate in value for some time, only to see its price go down afterwards. The authors offer no real argument as to why it would be insider trading...