Detecting Information from Directors' Trades: Signal Definition and Variable Size Effects

Authors: Gregory, Alan¹; Matatko, John²; Tonks, Ian³

Source: Journal of Business Finance & Accounting, Volume 24, Number 3, April 1997 , pp. 309-342(34)

Buy & download fulltext article:

Price: $48.00 plus tax (Refund Policy)

Abstract:

There have been three empirical studies examining the share price reaction following trades by directors of UK companies (King and Poell, 1988; Pope, Morris and Peel, 1990; and Gregory, Matatko, Tonks and Pukiss, 1994). All three of these UK studies used different definitions of `buy' and `sell' signals resulting from the transactions of directors and employ different controls to detect the presence of any `size effects'. We investigate whether the signal definition explains the different conclusions drawn by these earlier studies, and examine whether or not any observed abnormal returns are explicable by the small companies effect. We also investigate trading strategies based on holding a long portfolio of shares purchased or a short portfolio of shares sold by directors held until the end of the study period or until a `reserving event' (e.g. a sale following a purchase by director[s] is observed).

Keywords: insider trading; market efficiency

Document Type: Original article

DOI: http://dx.doi.org/10.1111/1468-5957.00107

Affiliations: 1: Department of Accounting and Finance, University of Wales, Aberystwyth, 2: Department of Economics, University of Exeter, 3: Department of Economics, University of Bristol

Publication date: 1997-04-01