Abstract:
The Insider Trading Act of 1999 and JSE regulations require transparency in
director dealings and as a result create an unprecedented dissemination of
investment signals to the market. This research study used director dealing
information and a portfolio time series approach that included the entire
population of 13,840 JSE All Share Index (ALSI) director dealings during a 130-
month period between 2002 and 2013. With the assistance of a style engine and
through an experimental research approach, an optimal Buy and Sell investment
style was established. The equal weighted ALSI provided a comparative
benchmark.
Most studies on JSE director dealings, using an event study methodology, have
not identified an investment style to be followed successfully during certain
periods. The results have at best shown statistically significant, but economically
insignificant, abnormal returns.
The results of this study were visually, statistically and economically significant in
comparison. It was proven that outside investors should, rationally, acquire
shares when directors acquire shares but they should, counter intuitively,
purchase shares when directors sell shares. The optimal director dealing
investment style for creating a director dealing Buy portfolio includes applying a
holding period of four months, a lookback period of three months and a minimum
percentage of market capitalisation traded of 0.0013% or more. The optimal
director dealing investment style for creating a director dealing Sell portfolio
includes applying a holding period of three months, a lookback period of three
months and a minimum percentage of market capitalisation traded between
0.005% and 0.030%. The optimal director dealings Buy and Sell portfolios
achieved a CAGR (Compound Annual Growth Rate) of 29.5% and 27.8%
respectively. The comparative benchmark achieved a CAGR of 19.1% over the
same relevant period.
