Abstract

http://ssrn.com/abstract=2167998
 


 



The Sound of Silence: What Do We Know When Insiders Do Not Trade?


George Gao


Cornell University - Samuel Curtis Johnson Graduate School of Management

Qingzhong Ma


Cornell University

October 25, 2013

Johnson School Research Paper Series No. 3-2013

Abstract:     
This paper examines stock returns following insider silence, periods of no insider trading. We hypothesize that, for fear of litigation risk, rational insiders do not sell own-company shares when they withhold bad news; neither would they buy, given unfavorable prospects; thus they keep silent. By contrast, insiders sell shares when they do not anticipate significant bad news. Consistent with this hypothesis, future returns are significantly lower following insider silence than following insider net selling. Further, the silence-sell return difference is wider among firms with worse information environment and firms at higher litigation risk. In sum, insider silence sounds bad news.

Number of Pages in PDF File: 50

Keywords: Insider trading, Insider silence, Information environment, Litigation risk

JEL Classification: G12, G14, G18

working papers series


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Date posted: October 29, 2012 ; Last revised: January 23, 2014

Suggested Citation

Gao, George and Ma, Qingzhong, The Sound of Silence: What Do We Know When Insiders Do Not Trade? (October 25, 2013). Johnson School Research Paper Series No. 3-2013. Available at SSRN: http://ssrn.com/abstract=2167998 or http://dx.doi.org/10.2139/ssrn.2167998

Contact Information

George Gao
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Sage Hall 366
Ithaca, NY 14853
United States
Qingzhong Ma (Contact Author)
Cornell University ( email )
Ithaca, NY 14853
United States
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