The Information Content of Sudden Insider Silence

68 Pages Posted: 10 Dec 2015 Last revised: 16 Feb 2018

See all articles by Claire Yurong Hong

Claire Yurong Hong

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business

Date Written: February 14, 2018

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 routine sell (buy) predict positive (negative) future return as well as fundamentals. The return predictability of insider silence is stronger among firms with 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.

Keywords: Insider Silence, Return Predictability, Underreaction, Information Content

JEL Classification: G12, G14

Suggested Citation

Hong, Claire Yurong and Li, Frank Weikai, The Information Content of Sudden Insider Silence (February 14, 2018). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2701254 or http://dx.doi.org/10.2139/ssrn.2701254

Claire Yurong Hong

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

211 West Huaihai Road
Shanghai, China
Shanghai, Shanghai 200030
China

HOME PAGE: http://https://sites.google.com/site/claireyuronghong/

Frank Weikai Li (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
492
Abstract Views
2,275
rank
65,975
PlumX Metrics