Directors' dealings: an analysis of their predictive power

This thesis conducts an in-depth examination of directors’ dealings, specifically exploring the potential for predicting future fluctuations in share prices based on the nature of these transactions. Directors’ dealings are analysed in isolation as well as in conjunction with buybacks and transactions executed by prominent investors. A comprehensive dataset of 1,773,971 dealings are crawled from various online sources, employing techniques ranging from a basic web request to rudimentary Natural Language Processing (NLP) methods. Building upon an existing database of buybacks, it is proved that there is a surge in dealings immediately after the announcement date of a buyback. Subsequently, an assessment is made on whether directors’ dealings confer an advantage for traders following them, comparing share price movements over a two-year period against the MSCI World index. Due to the challenge of comparing companies with very different market capitalizations, alternative indexes are introduced, each serving as a benchmark for companies in a different market capitalization range. In the majority of instances, the median of the percentage points of out-performance relative to the respective indexes proves that a majority of dealings produces an advantage for the director, particularly in the case of share purchases, especially over the long term (two years post-dealing). Conversely, sales of shares by a director yield less conclusive results, with some cases exhibiting a median below zero, indicating that a significant portion of directors are not selling at the right moment. An analogous analysis is conducted, focusing on dealings executed in the thirty days after a buyback announcement. In this scenario, it is observed that the percentage points of outperformance generally fall below the values observed when considering all directors’ dealings. After splitting the dealings by country, an examination to identify the country where directors tend to achieve the most significant gains is conducted. Purchases executed by directors in the United States and Honk Kong emerge as particularly favourable. Finally, a research is conducted to identify the top-performing directors who stand out in both purchases and sales, possibly leading to a list of names that, if closely monitored, could have potentially yielded substantial returns.