The idea and the mechanism
An open-market purchase is a costly, credible signal: insiders only buy with cash when they think the price is low, and they're legally exposed if they're trading on something improper. Clustered buying — many insiders, short window — is one of the most durable documented anomalies. It's strongest in small caps, which is precisely where capacity stops the funds from competing it away.
The most robust effect on the candidate list, equity-expressible so it sidesteps the options-history blocker entirely — a strong, clean Stage-1 validator. Equity is the clean expression; calls add convexity where liquidity allows.
The frozen gate
Will be considered to have passed Stage 1 if:
- Mean per-event 20-day excess return over equal-weighted small-cap baseline ≥ +1.5pp [suggested, to freeze]
- Hit rate ≥ 55% [suggested, to freeze]
- Sample size ≥ 400 cluster events across the look-back window [suggested, to freeze]
- Effect present in both sample halves [suggested, to freeze]
- Welch p<0.05 AND mean>0 [suggested, to freeze]
- Filter-validity check: pure open-market purchases (code P) must outperform mixed-code events (P + M, P + G) — if not, the classifier is wrong or the signal is weaker than claimed [suggested, to freeze]
What we expect to find
Effect probably present and clearer than most candidates on the list because the underlying anomaly has held up across many academic studies (Lakonishok-Lee, Cohen-Malloy-Pomorski, etc). Expected mean excess return 1-3pp, hit rate 55-60%. Probability of clearing the gate is moderate-high (~60%). Most likely failure mode is the classification problem: distinguishing genuine conviction clusters from routine, scheduled buying (10b5-1 plans appear in Form 4 too) is real work and a sloppy filter will dissolve the edge into noise.
Methodology appendix — gates, exact parameters, look-ahead audit — is visible to subscribers. See the plans →