Signaling
TheoryDefinition
In markets, information conveyed by an action rather than direct disclosure. Insider buying signals confidence; aggressive buybacks signal management thinks the stock is undervalued; dividend cuts signal expected weakness.
Skilled investors parse signals more than statements. The "signaling premium" — price moves on insider buys — has historically delivered ~5% alpha over 6-month windows, though much of it has been arbitraged.
Skilled investors parse signals more than statements. The "signaling premium" — price moves on insider buys — has historically delivered ~5% alpha over 6-month windows, though much of it has been arbitraged.