The Dog that Did Not Bark: Insider Trading and Crashes

59 Pages Posted: 22 May 2008

See all articles by Jose M. Marin

Jose M. Marin

Universidad Carlos III de Madrid

Jacques Olivier

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2007

Abstract

This paper documents that at the individual stock level insiders sales peak many months before a large drop in the stock price, while insiders purchases peak only the month before a large jump. We provide a theoretical explanation for this phenomenon based on trading constraints and asymmetric information. A key feature of our theory is that rational uninformed investors may react more strongly to the absence of insider sales than to their presence (the 'dog that did not bark' effect). We test our hypothesis against competing stories such as patterns of insider trading driven by earnings announcement dates, or insiders timing their trades to evade prosecution.

Keywords: crashes, insider trading, rational expectations equilibrium, short-sale constraints, volatility

JEL Classification: D82, G11, G12, G14, G28

Suggested Citation

Marin, Jose M. and Olivier, Jacques, The Dog that Did Not Bark: Insider Trading and Crashes (April 2007). CEPR Discussion Paper No. DP6244. Available at SSRN: https://ssrn.com/abstract=1135482

Jose M. Marin

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

HOME PAGE: http://www.josemarin.com

Jacques Olivier (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 3967 7297 (Phone)
+33 1 3967 7085 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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