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

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    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.

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    Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Accounting, Finance, Financial Planning and Insurance Series with number 2007_19.

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    Length: 31 pages
    Date of creation: 19 Dec 2007
    Handle: RePEc:dkn:acctwp:aef_2007_19
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