The dog that did not bark: Insider trading and crashes

Jose Marin (josemaria.marin@uc3m.es) and Jacques Olivier (olivier@hec.fr)
Additional contact information
Jacques Olivier: HEC Paris

No 2007-20, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

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: insider trading; rational expectations equilibrium; trading constraints; volatility; crashes; short- sales constraint (search for similar items in EconPapers)
JEL-codes: D82 G11 G12 G14 G28 (search for similar items in EconPapers)
Date: 2007-10-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Finance 63(5), October 2008: 2429-2476

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Related works:
Working Paper: The Dog That Did Not Bark: Insider Trading and Crashes (2015)
Journal Article: The Dog That Did Not Bark: Insider Trading and Crashes (2008)
Working Paper: The Dog that Did Not Bark: Insider Trading and Crashes (2007)
Working Paper: The dog that did not bark: insider trading and crashes (2006)
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