Director dealings as an investment strategy

dc.contributor.authorMoodley, N.
dc.contributor.authorMuller, C.
dc.contributor.authorWard, Michael
dc.date.accessioned2016-09-12T14:23:53Z
dc.date.available2016-09-12T14:23:53Z
dc.date.issued2016
dc.description.abstractThe Insider Trading Act of 1999 and Johannesburg Stock Exchange (JSE) regulations require transparency in director dealings. Directors are required to report all share trading in companies of which they are principals, and this information has been regarded as a signal to the market. We examine the value of this information, using 13 840 director trades and a portfolio time series approach from 2002 to 2013. Whereas most studies have used an event study methodology, we treat the problem primarily as an investment style, and using a trading rule approach we optimise the look-back and holding periods to show statistically and economically significant returns for investors who mimic director trades. When directors of companies report net acquisitions of shares over the preceding three months, investors who then purchase an equal weighted portfolio of the same shares, and hold these for four months, would have achieved an annualised return of 24.3% after transaction costs. When directors of companies report net disposals of shares over the preceding three months, investors who purchase a portfolio of the same shares, and hold these for three months, would have achieved an annualised return of 21.0% after transaction costs. Both of these strategies out-performed the comparable equal weighted benchmark return of 19.1% pa over the same period. We triangulate these results using an event-study methodology, and whilst we find similar results for investors following a directors' purchasing strategy, the event study methodology shows that investors who purchase shares following a directors' selling strategy would underperform. In both instances, the style analysis reveals that imitating directors' trading lacked persistence after the global financial crisis of 2008, and we would not recommend either strategy.en_ZA
dc.description.departmentGordon Institute of Business Science (GIBS)en_ZA
dc.description.librarianam2016en_ZA
dc.description.urihttp://www.journals.co.za/ej/ejour_bersee.htmlen_ZA
dc.identifier.citationMoodley, N, Muller, C & Ward, M 2016, 'Director dealings as an investment strategy', Studies in Economics and Econometrics, vol. 40, no. 2, pp. 105-123.en_ZA
dc.identifier.issn0379-6205
dc.identifier.urihttp://hdl.handle.net/2263/56723
dc.language.isoenen_ZA
dc.publisherBureau for Economic Research and the Graduate School of Business, University of Stellenboschen_ZA
dc.rightsBureau for Economic Research and the Graduate School of Business, University of Stellenboschen_ZA
dc.subjectTrading Act of 1999en_ZA
dc.subjectJohannesburg Stock Exchange (JSE)en_ZA
dc.subjectDirectorsen_ZA
dc.subjectSharesen_ZA
dc.titleDirector dealings as an investment strategyen_ZA
dc.typeArticleen_ZA

Files

Original bundle

Now showing 1 - 1 of 1
Loading...
Thumbnail Image
Name:
Moodley_Director_2016.pdf
Size:
1.44 MB
Format:
Adobe Portable Document Format
Description:
Article

License bundle

Now showing 1 - 1 of 1
Loading...
Thumbnail Image
Name:
license.txt
Size:
1.75 KB
Format:
Item-specific license agreed upon to submission
Description: