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The Dog That Did Not Bark: Insider Trading and Crashes




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    • Marin is at IMDEA Social Sciences and I.E. Business School. Olivier is at H.E.C. Paris, GREGHEC, and CEPR. The authors are grateful to Antoni Sureda for outstanding research assistance and Laurent Calvet, Paolo Colla, Thierry Foucault, Francesco Franzoni, Jeremy Large, Michael Rockinger, Bruno Solnik, Anthony Tay, Dimitri Vayanos, and Joachim Voth for insightful comments. They also thank seminar audiences at the 2006 Adam Smith Asset Pricing conference (Oxford), the 2006 European Finance Association meeting (Zurich), and the 2005 meeting of the Society for the Advancement of Economic Theory (Vigo) and Pompeu Fabra University, Singapore Management University, University of the Balearic Islands, University of Alicante, University Carlos III, and University of Zurich. The authors are especially thankful to Robert Stambaugh (the editor), the referee, and an associate editor for questions and suggestions that have significantly contributed to the quality of the paper. Jose Marin acknowledges financial support from the Spanish Ministry of Science and Education (SEJ2005–03924). Jacques Olivier gratefully acknowledges financial support from the Fondation HEC.


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.