Do directors' trades convey industry information?

Whether directors' trades contain industry information and if investors can profit by mimicking these trades are investigated. Using a sample of Australian firms with reported director trading activity between 2002 and 2003, the results show that by selling shares in industry-matched firms when a director reports a sale, an average loss of 1.32% (median of 4%) can be avoided over a six month period. Larger losses can be avoided when mimicking executive directors' trades. The losses avoided by such trades are directly explained by the losses avoided by directors themselves, consistent with the trades conveying industry information.