Gao et al.  find that insider will not sell their stocks in the time of bad news since they are afraid of facing litigation risk, and they also would not buy because of loss. Thus, insider will keep silence in this period to protect themselves. As a result, insider silence firms will have negative future abnormal return. Hong and Li  find that when routine insider selling (buying) suddenly become silence, it is a signal for positive (negative) future return. Although some papers have examined insider silence in the developed countries, no research explores insider silence in developing market. Therefore, we aim to find out the relationship between insider silence and firm future stock return in Vietnam security market to test whether the result is consistent with the available literature. We hypothesize that insider silence results in negative future return, future stock return of silence firms is more negative in the time of higher litigation risk and sudden insider silence have more impact on the stock return than unconditional insider silence. Empirical results shows although the effect of insider silence in Vietnam security market is weaker than that in US security market, it is still consistent with Gao et al. . The negative effect of insider silence on firmís future stock return is stronger in firm with higher litigation risk. Nevertheless, we cannot find the difference between the effects of sudden insider silence and unconditional insider silence on the future return.
JEL classification numbers: G11, G14
Keywords: Insider trading, Insider silence, Litigation risk, Vietnam Security market, Sudden Insider Silence.