The Information Content of Directors' Trades: Empirical Analysis of the Australian Market

30 Pages Posted: 7 Nov 2007

See all articles by Lisa Hotson

Lisa Hotson

Esanda Finance

Navjot Kaur

Deakin University - School of Accounting, Economics and Finance

Harminder Singh

Deakin University - School of Accounting, Economics and Finance

Date Written: September 25, 2007

Abstract

We examine the trading activities of directors in shares of their own companies on the Australian Stock Exchange during the July-December 2005 period. We find that directors of small companies in particular earn abnormal return after both their 'Purchase' and as well as their 'Sale' trade. Directors of these companies have an uncanny ability to time the market by trading when mispricing is greatest, and are able to predict the future performance of their firms in short run. For directors of medium and large companies, we find evidence that 'Sale' trades are the ones which work as loss avoiders. Outsiders recognise to some extent that directors' trades are informative, however they are slow to incorporate the new information into prices, refuting much of the market efficiency literature.

Keywords: Insider trading, Mergers, Market efficiency

JEL Classification: G14, G34

Suggested Citation

Hotson, Lisa and Kaur, Navjot and Singh, Harminder, The Information Content of Directors' Trades: Empirical Analysis of the Australian Market (September 25, 2007). Available at SSRN: https://ssrn.com/abstract=1024627 or http://dx.doi.org/10.2139/ssrn.1024627

Lisa Hotson

Esanda Finance ( email )

85 Spring Street
Melbourne, VIC, 3000
Australia

Navjot Kaur

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Harminder Singh (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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