Impact of Legal Insider Purchase of Shares on the Stock Price: Empirical Evidence from Dhaka Stock Exchange

Abstract

This study looks at share price behavior in reaction to corporate announcement of directors’ intention to purchase shares from secondary market. Corporate announcement dates have been taken from share purchase notifications given to the Dhaka Stock Exchange (DSE) authority by the companies listed on the DSE from May 1, 2013 to April 30, 2014. Event study methodology has been employed to test abnormal returns on the announcement day and consecutive five days thereafter. The results show that average abnormal returns (AAR) are positive over first two days suggesting share prices increase when directors announce their intention to purchase shares. The t-test employed to examine the significance of cumulative abnormal returns (CAAR) revealed that abnormal returns are significant on first three (two) days at 5% (1%) level confirming the hypothesis that insider purchase announcement affects the DSE market over a short span.

Keywords: Corporate announcement, Dhaka Stock Exchange, Event study, Insider purchase.