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The purpose of this chapter is to establish whether director trades provide information to investors about the future prospects of the company they form part of and thus reduce the information asymmetry beyond what is already conveyed in the financial statements.

Director Dealings were dealt with as an investment strategy by looking at past transactions of directors executed between January 2005 and December 2014 on the Malta Stock Exchange (MSE) and evaluating whether there was an increase in returns for investors who copy director trades. The study focused on whether short-term abnormal returns for up to 12 months after the transaction date, being either a buy or a sale, were made by directors in Malta when trading in their own companies.

The results show that in the short-term period of up to 12 months after the transaction date, Maltese directors do transmit information to the market both when they purchase shares in their own companies and also when they sell shares. The interesting fact about the study is that in Malta sale transactions are more valuable to the outsiders than purchase transactions. Apart from this, the results also show that some companies which are listed on the MSE are more indicative as to their future performance than others. It was ultimately concluded that even though there are informational asymmetries between directors in a company and outsiders, an outsider cannot trade solely by following director trades. The implications of the findings are discussed.

This study attempts to determine the level of significance that each insider trade has on the Maltese market, what each director trade conveys to the said market and if these trades are valuable to the outside investors even though such investors do not have knowledge of the grounds upon which the directors trade.