Shares in Natwest Group hit a 52-week and 13-year high earlier this month, closing near 390p per share on 4 November. This new peak was achieved after leading broker Peel Hunt increased the bank's price target from 410p to 450p.
The share price has seen a surge of over 50 per cent since the 海角视频 government relinquished its controlling stake in the bank in March, along with its influence over the bank's decision-making process, as reported by .
The recent months have also witnessed earnings upgrades and some legal issues being addressed primarily the potential for substantial fines arising from the motor finance debacle.
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The 海角视频 government, which held a 14.56 per cent stake, sold directly to Natwest Group 263m shares, equating to 3.6 per cent of the group's issued share capital, at 380.6p per share. This transaction was valued at £1bn.
The government has not made a profit on this or the five separate deals since 2021, as it purchased the 84 per cent stake during the financial crisis at an average price of 502p. Could the government have reduced some of these losses by waiting a few months after the 52-week high before selling shares back to the Natwest Group?
The question of whether investors react to a 52-week share or index price peak by offloading their holdings has been a topic of debate among academics and practitioners for some time.
Research indicates that stocks often continue to climb after achieving their 52-week high across the ensuing one, six, and 12-month periods. Nevertheless, uninformed investors frequently offload these stocks; they erroneously view the 52-week high as a potential peaka misstep considering the 52-week figure is essentially an arbitrary, historical price point that shouldn't influence investment choices, despite its daily appearance in the financial press.
Such investors also tend to downplay the significance of the news or trends propelling the stock upwards. Instead, they perceive the 52-week zenith as a random incidentpredicting a downward trend from that point forward.
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Consequently, they place undue emphasis on this metric over fundamental company data for predicting future performance, an attitude that usually derives from individual investors' lack of information compared to corporate executives and substantially accounts for "momentum profits"earnings that do not dissipate even when accounting for past successes by how close they are to the 52-week high.
My co-author and I examined if corporate insiders exhibit the same anchoring biases as the less-informed investors. Anchoring bias, as defined by psychologists, is a concretised beliefin this context, a fixed notion about a share's maximum value.
It can also indicate a pack mentality that compels less-informed investors to dispose of their shares upon hitting a 52-week high.
Company executives, who have access to their firms' future cash flow projections, could potentially take advantage of other investors' anchoring bias to gain abnormal profits provided they themselves are not prone to anchoring and other behavioural biases.
Our research indicates that insiders employ dissimulation strategies to hide their informational advantage and trade profitably when their firms' share prices hit 52-week highs and lows, capitalising on the anchoring biases of uninformed investors. Specifically, we observe that when they purchase at a 52-week high, share prices continue to rise, resulting in substantial positive returns.
When they sell at a 52-week high, share prices do not significantly fluctuate, implying that they do not sell based on insider information leading to significant price drops. They offload shares at 52-week highs when they realise that the peak is temporary.
Therefore, their net sell trades at 52-week highs are not intended to evade losses.
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These findings imply that while insiders may purchase a stock for profit, they don't necessarily sell to avoid losses. They might offload shares in their own company to rebalance their portfolio and spread their risk, or simply because they require cash (as the 海角视频 government arguably did post-budget).
They may also hold back from selling based on private information to prevent a drop in stock prices or due to fear of regulatory scrutiny and potential shareholder lawsuits. Naturally, such decisions could merely reflect the individual personalities of insiders.
Consequently, investors, including the government, should probably not use the 52-week highs and the 52-week lows as reference points. They are trading based on behavioural impulses, rather than the company's fundamentals.
They might emulate the trading behaviour of insiders for profitable trading or heed the sage advice of always having solid reasons for buying and/or selling a specific stock or index. They are likely to see positive returns if they diversify their risk and retain their stocks for extended periods, rather than attempting to outperform the market by trading based on factors unrelated to a company or an index's future prospects.