Aesthetics

Insider trading

Engineering

Philosophy

Economics

Physics

Abnormal return

Earnings

Finance

Business

Stock (firearms)

Private information retrieval

Political science

Silence

Monetary economics

Quantum mechanics

Predictability

Insider

Computer science

Financial economics

Stock exchange

Inside information

Computer security

Mechanical engineering

Journal of Financial and Quantitative Analysis

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

The Information Content of Sudden Insider Silence