The dog that did not bark: Insider trading and crashes
AbstractThis 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.
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Bibliographic InfoPaper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2007-20.
Date of creation: 28 Oct 2007
Date of revision:
Publication status: Published in Journal of Finance 63(5), October 2008: 2429-2476
insider trading; rational expectations equilibrium; trading constraints; volatility; crashes; short- sales constraint;
Other versions of this item:
- Jose M. Marin & Jacques P. Olivier, 2008. "The Dog That Did Not Bark: Insider Trading and Crashes," Journal of Finance, American Finance Association, vol. 63(5), pages 2429-2476, October.
- Jacques Olivier & José M. Marin, 2006. "The Dog That Did Not Bark: Insider Trading and Crashes," Working Papers 241, Barcelona Graduate School of Economics.
- Marín Vigueras, José Maria & Olivier, Jacques, 2007. "The Dog that Did Not Bark: Insider Trading and Crashes," CEPR Discussion Papers 6244, C.E.P.R. Discussion Papers.
- José M. Marín & Jacques Olivier, 2006. "The dog that did not bark: Insider trading and crashes," Economics Working Papers 948, Department of Economics and Business, Universitat Pompeu Fabra.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
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