Abstract:
This study examines whether high volume directors’ trading is more informative than
low volume directors’ trading. It further examines the speed of adjustment of stock prices
for the information content of high volume directors’ trading of the listed companies in the
Colombo Stock Exchange (CSE). This study analyses a sample of high rupee-volume and
percentage-volume directors’ purchases and sales reported to the CSE during September,
2004 to August, 2012 using the standard event study methodology. The findings on the high
rupee-volume trading are consistent with the hypotheses that high rupee-volume directors’
purchases (sales) are associated with positive (negative) abnormal returns. Although the
abnormal returns of percentage-volume directors’ sales are negative and significant, the high
percentage-volume directors’ purchases are not significant. The findings on the speed of
adjustment of stock prices on these information are not conclusive. I.e., the abnormal returns
of high rupee-volume directors’ purchases are positive and significant on the event day and
the abnormal returns of high rupee-volume and percentage-volume director’s sales are
negative and significant but have been reflected in the stock prices with a delay suggesting
that the adjustment of stock prices for director’s sales may not be quick in the CSE.
