This story appears in the August 17, 2014 issue of Forbes. Subscribe
When the CEO is away, the stock doesn't play.
No news--good or bad--is apparently great news for investors looking for sleep-well-at-night stocks. Stock volatility drops by 13% when CEOs are away on vacation for five days or more, according to a 2013 study of 65 U.S public companies by New York University's David Yermack.
Through examining the timing of company news and CEO's absences from its headquarters, Yermack found that companies' news frequency level is significantly lower when the CEOs are out of office for vacations. Therefore investors can get valuable signals about upcoming news events by tracking down the company's corporate jet record and the chief executive's vacation plan.
The chart below shows how stock volatility moves along the timeline of the CEO vacations. Volatility begins to drop two days before the trip and remains low throughout the whole period. Two days after the long vacation, news frequency picks up and returns to the pre-vacation level.
So when your CEO hangs up his "Gone Fishing" sign next time, don’t miss a golden investment opportunity.
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