More than Just Contrarians: Insider Trading in Glamour and Value Firms

Abstract

This study examines the patterns of, and long-run returns to, directors' (insiders') trades along the value-glamour continuum in all stocks listed on the main London StockExchange and analyses what these directors' trades add to a naïve value-glamour strategy. We consider alternative definitions of 'value' in defining trades and in the construction of our benchmark portfolios so that directors' trades are evaluated net of any value-glamour effect, variously defined. We find that directors consistently trade in a contrarian fashion, buying more value stocks and selling more glamour stocks, with purchases following price falls and sales following price rises. Directors' buy signals in value stocks generate significant positive abnormal returns while the sell signals in glamour stocks generate smaller and generally insignificant negative returns. In contrast to the results from US studies, we find that the positive abnormal returns in value stocks persist for up to two-years after the initial directors' trading signal. Abnormal returns are particularly concentrated in smaller value stocks, and are robust to alternative definitions of value.

Constructing and Testing Alternative Versions of the Fama–French and Carhart Models in the UK

“…Our data come from various sources and cover the period from October 1980 to December 2010. The monthly stock returns and market capitalisations are from the London Business School Share Price Database (LSPD), The book‐values are primarily from Datastream, with missing values filled in with data from: Thomson One Banker; tailored Hemscott data (from the Gregory, Tharyan and Tonks, study of directors’ trading) obtained by subscription; and hand collected data on bankrupt firms from Christidis and Gregory (). By combining several data sources we are able to fill in any data gaps in the data available from Datastream.…”

Constructing and Testing Alternative Versions of the Fama-French and Carhart Models in the UK

“…Datastream; Thomson One Banker; tailored Hemscott data (from the Gregory, Tharyan and Tonks [2011] study of directors" trading) obtained by subscription; and hand collected data on bankrupt firms from Christidis and Gregory (2010), from which we obtain estimates of book value used in the computation of the BTM ratios used in portfolio formation. Combining these data sources means that we are able to infill any missing data on any one firm in either of the Hemscott or Datastream sources.…”

Does the Stock Market Gender Stereotype Corporate Boards? Evidence from the Market's Reaction to Directors' Trades

“…Following the recent literature on the measurement of longrun returns, we use a calendar time abnormal returns (CTAR) method. We control for the welldocumented size and value effects (Gregory, Tharyan and Tonks, 2011;Lakonishok and Lee, 2001) by using a survivorship-bias free set of Fama-French factors for the UK constructed by Gregory, Tharyan and Huang (2009). 9 The CTAR reported are monthly estimates, and include the month of the trade itself.…”