Stock market patterns around directors’ trades: effects of director category and gender on market timing

Abstract

We examine whether directors of UK companies can time the market when they trade in their own-company stock, using a comprehensive dataset on all directors’ trades from 1994-2006 for FTSE All Share companies 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 firms, 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.