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

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 generate some ,abnormal ,return. 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.