Abstract

http://ssrn.com/abstract=2167998
 


 



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


George Gao


T. Rowe Price; Cornell University - Samuel Curtis Johnson Graduate School of Management

Qingzhong Ma


California State University, Chico - Department of Finance and Marketing

David T. Ng


Cornell University

May 18, 2015

Johnson School Research Paper Series No. 3-2013

Abstract:     
This paper examines the information content of insider silence, periods of no insider trading. We hypothesize that, to avoid litigation risk, rational insiders do not sell own-company shares when they anticipate 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, we find insiders are more likely to stay silent prior to shareholder litigations or large stock price drops. We also show future stock returns are significantly lower following insider silence than following insider net selling, and insider silence predicts more negative returns among firms at higher litigation risk. In sum, insider silence is bad news.

Number of Pages in PDF File: 47

Keywords: Insider trading, Insider silence, Litigation risk

JEL Classification: G12, G14, G18


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Date posted: October 29, 2012 ; Last revised: May 22, 2015

Suggested Citation

Gao, George and Ma, Qingzhong and Ng, David T., The Sound of Silence: What Do We Know When Insiders Do Not Trade? (May 18, 2015). 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 (Contact Author)
T. Rowe Price ( email )
Baltimore, MD 21297-1215
United States
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Sage Hall 314
Ithaca, NY 14853
United States

Qingzhong Ma
California State University, Chico - Department of Finance and Marketing ( email )
325 Tehama Hall
Chico, CA 95929
United States
David T. Ng
Cornell University ( email )
Ithaca, NY 14853
United States
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