Professor Ian Tonks, Director of the Centre for Finance & Investment
Stock market patterns around directors' trades
In this work, we examine whether directors of UK companies can time the market when they trade in their own company's stock, using a comprehensive dataset on all directors' trades from 1994-2006 for FTSE All Share and AIM-listed companies. We find that in the 20 days before a director's buy (sell) trade, prices fall (rise) such that abnormal returns are -2.48% (+2.17%); in the 20 days after a directors' buy (sell) trade, abnormal returns are 1.55% (-1.19%). We go on to examine whether the category (executive or non-executive) and the gender (male or female) of the director differ in the information they posses about their own companies, how they trade on this information and how markets respond to their trades. We test both the information hierarchy hypothesis, that more senior corporate insiders have access to better information, and also a characteristics-based trading hypothesis, that the director's trading pattern depends on the gender of the director. We find some support for the information hierarchy hypothesis, but no difference in the trading patterns and stock market response to directors' gender differences, after conditioning on the category of director.
Professor Ian Tonks is Director of Xfi Centre for Finance and Investment at the University of Exeter. His research focuses on pension economics; fund manager performance; market microstructure and the organisation of stock exchanges; directors' trading; and the new issue market. He has recently completed a book on annuity markets to be published by Oxford University Press in October 2008. He has published in leading finance and economics journals, and teaches across all areas of financial economics including asset pricing, corporate finance, market efficiency and performance measurement. He is a consultant to the Financial Markets Group, and the Centre for Market and Public Organisation. He has previously held positions at the University of Bristol, and the London School of Economics and has held visiting positions at Bank of England (Houblon-Norman Fellow), University of British Columbia, Solvay Business School, Bruxelles; City University Business School; Ecole Nationale Des Ponts et Chaussees, Paris. He has acted as a consultant to a number of commercial and regulatory organisations including the London Stock Exchange, the Competition Commission, and the Financial Services Authority, and has advised the Department of Work and Pensions, and the House of Commons Select Committee on issues in pensions.
