The information content of directors\u27 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 \u27Purchase\u27 and as well as their \u27Sale\u27 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 \u27Sale\u27 trades are the ones which work as loss avoiders. Outsiders recognise to some extent that directors\u27 trades are informative, however they are slow to incorporate the new information into prices, refuting much of the market efficiency literature.