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

Author

Listed:
  • Alan Gregory

    (Department of Accounting and Finance, University of Wales, Aberystwyth,)

  • John Matatko
  • Ian Tonks

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). Copyright Blackwell Publishers Ltd 1997.

Suggested Citation

  • Alan Gregory & John Matatko & Ian Tonks, 1997. "Detecting Information from Directors' Trades: Signal Definition and Variable Size Effects," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 309-342.
  • Handle: RePEc:bla:jbfnac:v:24:y:1997-04:i:3:p:309-342
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    Citations

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    Cited by:

    1. Adriana Korczak & Piotr Korczak & Meziane Lasfer, 2010. "To Trade or Not to Trade: The Strategic Trading of Insiders around News Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 369-407.
    2. John Matatko & Alan Gregory & Ian Tonks & Sylvain Friederich, 1999. "Stock Price Around the Trades of Corporate Insider on the London Stock Exchange," FMG Discussion Papers dp332, Financial Markets Group.
    3. Renneboog, L.D.R. & Trojanowski, G., 2005. "Patterns in Payout Policy and Payout Channel Choice of UK Firms in the 1990s," Discussion Paper 2005-22, Tilburg University, Center for Economic Research.
    4. Jana P. Fidrmuc & Marc Goergen & Luc Renneboog, 2006. "Insider Trading, News Releases, and Ownership Concentration," Journal of Finance, American Finance Association, vol. 61(6), pages 2931-2973, December.
    5. André Betzer & Erik Theissen, 2010. "Sooner or Later: An Analysis of the Delays in Insider Trading Reporting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1-2), pages 130-147.
    6. Rose, Caspar, 2003. "Impact of investor meetings/presentations on share prices, insider trading and securities regulation," International Review of Law and Economics, Elsevier, vol. 23(3), pages 227-236, September.
    7. repec:spr:decisn:v:44:y:2017:i:4:d:10.1007_s40622-017-0167-3 is not listed on IDEAS
    8. repec:cbu:jrnlec:y:2017:v:1special:p:174-179 is not listed on IDEAS
    9. Shams, Syed M.M. & Duong, Huu Nhan & Singh, Harminder, 2016. "Information content of directors' trading around acquisitions," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 177-193.
    10. Kyriacos Kyriacou & Bryan Mase, 2006. "The Adverse Consequences of Share-Based Pay in Risky Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 10(3), pages 307-323, September.
    11. Abu Chowdhury & Sabur Mollah & Mir A. Zaman, 2018. "What Motivates CEO and CFO Trading – Contrarian Beliefs or Superior Information?," Working Papers 2018-10, Swansea University, School of Management.
    12. Cheng, Louis T.W. & Davidson III, Wallace N. & Leung, T.Y., 2011. "Insider trading returns and dividend signals," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 421-429, June.
    13. Firth, Michael & Leung, T.Y. & Rui, Oliver M., 2010. "Double signals or single signal? An investigation of insider trading around share repurchases," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 376-388, October.
    14. Bruce Burton & A. Alasdair Lonie & David Power, 2003. "Insider trading, growth opportunities and the market reaction to new financing announcements," The European Journal of Finance, Taylor & Francis Journals, vol. 9(4), pages 301-322.
    15. Katherine Uylangco & Steve Easton & Robert Faff, 2010. "The equity and efficiency of the Australian share market with respect to director trading," Accounting Research Journal, Emerald Group Publishing, vol. 23(1), pages 5-19, July.
    16. Madura, Jeff & Marciniak, Marek, 2014. "Bidder country characteristics and informed trading in U.S. targets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 256-284.
    17. Yin-Hua Yeh & Pei-Gi Shu & Ya-Wei Yang, 2016. "How Insiders’ Personal Incentives and Timeliness of Information Revelation are Related to Their Sales Timing," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-26, June.
    18. Bart Frijns & Aaron Gilbert & Alireza Tourani-Rad, 2008. "Insider Trading, Regulation, And The Components Of The Bid-Ask Spread," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(3), pages 225-246.
    19. Ian Tonks, 2010. ""Discussion of" To Trade or Not To Trade: The Strategic Trading of Insiders around News Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 408-421.
    20. Goergen, M. & Renneboog, L.D.R. & Zhang, C., 2008. "Do UK Institutional Shareholders Monitor their Investee Firms?," Discussion Paper 2008-38, Tilburg University, Center for Economic Research.
    21. Nadia Linciano, 2003. "The Effectiveness of Insider Trading Regulation in Italy. Evidence from Stock-Price Run-Ups Around Announcements of Corporate Control Transactions," European Journal of Law and Economics, Springer, vol. 16(2), pages 199-218, September.
    22. Michael Firth & T. Y. Leung & Oliver M. Rui, 2009. "Insider Trading in Hong Kong: Tests of Stock Returns and Trading Frequency," Working Papers 042009, Hong Kong Institute for Monetary Research.
    23. Philip Hamill & Philip McIlkenny & Kwaku Opong, 2002. "Directors' Share Dealings and Company Financial Performance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 6(3), pages 215-234, September.
    24. Cheng, Louis & Firth, Michael & Leung, T.Y. & Rui, Oliver, 2006. "The effects of insider trading on liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 14(5), pages 467-483, November.

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