Journal of Financial and Quantitative Analysis Vol. 54 No. 4 2019
The Information Content of Sudden Insider Silence
Abstract
We present evidence of investors underreacting to the absence of events in financial markets. Routine-based insiders strategically choose to be silent when they possess private information not yet reflected in stock prices. Consistent with our hypothesis, insider silence following a routine sell (buy) predicts positive (negative) future returns, as well as fundamentals. The return predictability of insider silence is stronger among firms with a poor information environment and facing higher arbitrage costs, and a large fraction of abnormal returns concentrates on future earnings announcements. A long–short strategy that exploits insiders’ strategic silence behavior generates abnormal returns of 6% to 10% annually.
- DOI
- 10.1017/s0022109018001059
- Volume
- 54
- Issue
- 4
- Pages
- 1499-1538
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib