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Profitability of directors' share dealings on the JSE

Directors are generally assumed to be better informed than the average outside investor about their company's value and prospects. Therefore when directors buy and sell the shares of their firm, they might be transmitting useful trading signals. This paper investigates whether directors of JSE Securities Exchange SA listed companies earn abnormal returns from own-company trades. If so, outside investors may share in this outperformance through mimicking these trades. An event study shows directors do earn substantial abnormal returns, but only from sale transactions, not purchases. However, most of this outperformance is due to the existence of market effects and not because of the director's transaction.