Anticipating the Financial Crisis: Evidence from Insider Trading in Banks

José M. Marín, Ozlem Akin and José-Luis Peydró
Authors registered in the RePEc Author Service: Jose M. Marin () and Jose-Luis Peydro

No 906, Working Papers from Barcelona School of Economics

Abstract: Banking crises are recurrent phenomena, often induced by ex-ante excessive bank risk-taking, which may be due to behavioral reasons (overoptimistic banks neglecting risks) and to agency problems between bank shareholders with debt-holders and taxpayers (banks understand high risktaking). We test whether US banks' stock returns in the 2007-08 crisis are related to bank insiders' sale 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' ex-ante sales of shares predicts the cross-section of banks returns during the crisis; interestingly, effects are insignificant for independent directors' and other officers' sale of shares. Moreover, the top-five executives' significant impact is stronger for banks with higher ex-ante 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 risk-taking in their banks, which has important implications for theory, public policy and the understanding of crises.

Keywords: monetary policy; financial crises; banking; public policy; credit; macroeconomics and credit markets; international finance (search for similar items in EconPapers)
JEL-codes: G01 G02 G21 G28 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Anticipating the financial crisis: evidence from insider trading in banks (2020)
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 (2019)
Working Paper: Anticipating the financial crisis: Evidence from insider trading in banks (2016)
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