Anticipating the financial crisis: Evidence from insider trading in banks

Ozlem Akin, Jose Marin (josemaria.marin@uc3m.es) and Jose-Luis Peydro

EconStor Open Access Articles and Book Chapters, 2020, vol. 35, issue 102, 213-267

Abstract: Banking crises are recurrent phenomena, often induced by excessive bank risk-taking, which may be due to behavioral reasons (over-optimistic banks neglecting risks) and to agency problems between bank shareholders with debt-holders and taxpayers (banks understand high risk-taking). We test whether US banks’ stock returns in the 2007-08 crisis are related to bank insiders’ sales of their own bank shares in the period prior to 2006:Q2 (the peak and reversal in real estate prices). We find that top-five executives’ sales of shares predict the cross-section of banks returns during the crisis; interestingly, effects are insignificant for independent directors’ and other officers’ sales. Moreover, the top-five executives’ significant impact is stronger for banks with higher exposure to the real estate bubble, where an increase of one standard deviation of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. The informational content of bank insider trading before the crisis suggests that insiders understood the excessive risk-taking in their banks, which has important implications for theory, public policy and the understanding of crises.

Keywords: financial crises; insider trading; banking; risk-taking; problems in firms (search for similar items in EconPapers)
JEL-codes: G01 G02 G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/221755/1/WP.pdf (application/pdf)

Related works:
Journal Article: Anticipating the financial crisis: evidence from insider trading in banks (2020)
Working Paper: Anticipating the Financial Crisis: Evidence from Insider Trading in Banks (2020)
Working Paper: Anticipating the Financial Crisis: Evidence from Insider Trading in Banks (2016)
Working Paper: Anticipating the financial crisis: Evidence from insider trading in banks (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:221755

Access Statistics for this article

More articles in EconStor Open Access Articles and Book Chapters from ZBW - Leibniz Information Centre for Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).