We present evidence of investors underreacting to the absence of events in financialmarkets. Routine-based insiders strategically choose to be silent when they possessprivate information not yet reflected in stock prices. Consistent with our hypothesis,insider silence following routine sell (buy) predict positive (negative) future return aswell as fundamentals. The return predictability of insider silence is stronger amongfirms with poor information environment and facing higher arbitrage costs, and alarge fraction of abnormal returns concentrates on future earnings announcements. Along-short strategy that exploits insiders’ strategic silence behavior generates abnormalreturns of 6% to 10% annually
Insider Silence, Information Content, Underreaction, Return Predictability
Management Information Systems
HONG, Claire Yurong and LI, Frank Weikai.
The information content of sudden Insider Silence. (2017). Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5320
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