Directors are assumed to have more information about their company’s prospects than any other market participant. Thus it would appear that directors are well placed to profit from insider trading. This suggests, therefore, that company directors may time their dealing activities to coincide with periods which will be most profitable to them. Directors will therefore buy when they perceive the firm’s share price to be undervalued and sell when the price is overvalued. This study seeks to provide evidence on the ability of company directors to time their purchasing (selling) activities to coincide with periods when they perceive the value of their firms as relatively low (high) compared to their valuation on the basis of their superior information. In the presence of strong form market efficiency, the timing ability of directors share dealings will be redundant. The sample comprises those firms that constitute the FTSE 250. Whilst not conclusive, the results of the study appear to indicate that directors do have some timing ability in their share dealings. However, no significant positive abnormal returns are earned following directors’ share dealing announcements.
Introduction
Do Directors Time Their Share Dealing Activities?
UK Regulation of Directors’ Sharedealing Activities
Literature Review
Data
Methodology
Trading Volume Analysis
Discussion of Results
Conclusions
References