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Market sentiment, volatility, timing and the information content of directors’ trades

Andriosopoulos, Dimitris and Hoque, Hafiz (2016) Market sentiment, volatility, timing and the information content of directors’ trades. Working paper. University of Strathclyde, Glasgow. (Unpublished)

Text (Andriosopoulos-Hoque-2016-Market-sentiment-volatility-timing-and-the-information-content)

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    We examine the impact of aggregate director dealings in the UK. We find that, in aggregate, directors are contrarians, but their trades are not informative, contrary to previous US evidence. We suggest that this discrepancy is related to the regulatory setting in the UK where directors have to report their trades within six days. Aggregate directors’ trading is affected by the market sentiment as they are net purchasers in the bear market and net sellers in the bull market. Since directors’ reporting is faster in the UK, we then analyze the short-run market reaction to director trades. We find that the information content of director dealings is limited to the period surrounding the announcement dates. We show that market-to-book, company size, stock volatility and market volatility have a significant impact on disclosure period returns. In addition, we find that the market reaction is significantly weaker after controlling for market-to-book and size. Finally, we show that directors time their trades in volatile stocks and following high market volatility.