What are directors' trades around profit warnings really telling us?

n this article, the authors investigate director trading activity around profitwarnings. It was expected that, since firms are required to releaseprice-sensitive information, such as in the form of profit warnings, to ensurethat investors are continually informed of changes in performance and futureprospects, directors time their trades to maximise personal gains. Resultsshow that in the 12 months leading up to the warning, there is a decrease inshare price that continues after the warning. Directors take advantage of thesituation by increasing their holdings in the pre-warning period and continuebuying, though to a lesser extent, after the warning’s release. The findingsindicate that profit warnings signal poorer, though temporary, financialperformance and insiders, such as directors, profit from this knowledge.