The Dog that Did not Bark: Insider Trading and Crashes Articles uri icon

publication date

  • September 2008

start page

  • 2429

end page

  • 2476


  • 5


  • 63

International Standard Serial Number (ISSN)

  • 0022-1082

Electronic International Standard Serial Number (EISSN)

  • 1540-6261


  • 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 insiders timing their trades to evade prosecution.