Industry effects in directors’ dealings and abnormal stock returns: Results from the German stock market

Abstract

While the occurrence of insider profits from directors’ dealings has been discovered for international stock markets, the industry effects of executives’ transactions have been scarcely part of previous research. Since on a firm-specific level, there are indications for a positive relation between companies’ investments in research and development (R&D investments) and abnormal returns, this paper examines whether these results also hold on an industry level. We elaborate and apply an event study for all companies listed in the HDAX at the German stock market between January 2013 and August 2018, firstly on an overall level and secondly on an industry level within the HDAX. Additionally, we analyze the switch in the regulatory framework from national to EU legislation (WpHG to MAR) in 2016 and the potential consequences for directors’ dealings and stock market reactions. Our analysis shows that insiders in general act as contrarian investors. However, our analysis of directors’ dealings related to potential industry effects does not lead to significant abnormal returns. The shift in insider trading regulation from German to European legislation in the middle of the sample period leads to a decreasing in abnormal returns over time. Our results are robust to different market models as well as size effects. We conclude that outside investors cannot profit from monitoring and analyzing directors’ dealings on an industry level and recommend a firm-specific level.