Document Type Master's Dissertation Author Mokale, Tebogo URN etd-05222011-111043 Document Title Does contrarian trading by directors provide a signal to outside investors for future abnormal returns in South Africa Degree MBA Department Gordon Institute of Business Science Supervisor
Advisor Name Title Mr R Gunn Supervisor Keywords
- abnormal returns
- director trading
- contrarian trading
Date 2010-11-10 Availability unrestricted Abstract
Directors of listed companies earn abnormal returns by trading in a contrarian manner. This research report investigated whether outside investors can earn abnormal returns by following director contrarian trades.
The returns to directors and outsiders, following a director trade were analysed using the event study methodology. The event study methodology utilised director trading information from SENS announcements on the JSE Securities Exchange, daily share prices, betas and price to book values for the selected companies, and daily all share index prices. The focus of the analysis was the post trade Cumulative Average Abnormal Returns (CAAR), in the 20 days following the director trade.
The overall CAAR for all transactions was a statistically significant but economically insignificant 0.43%. When viewed from a transaction type perspective, the CAAR was 0.72% and 0.44% for purchases and sales transactions respectively. This study shows that while directors of listed South African companies do earn abnormal returns, they do not do so while consistently trading in a contrarian manner. In fact, transactions not deemed contrarian generated higher abnormal returns for directors. In addition, the study shows that outside investors do not earn abnormal returns by mimicking directors, and actually, their following of director trades generates the abnormal returns for directors.
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Please cite as follows:
Mokale, T 2010, Does contrarian trading by directors provide a signal to outside investors for future abnormal returns in South Africa, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-05222011-111043/>
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