Trading by Bank Insiders Before and During the 2007-2008 Financial Crisis
University of Toronto - Department of Economics
January 31, 2014
This paper sheds new light on the role of bank executives in the financial crisis. It examines whether bank executives foresaw the poor performance of their own bank before the crisis by analyzing their insider trading patterns. I find that insider trading in banks with a high exposure to the housing market and banks with a low exposure exhibit different patterns starting in mid-2006, when US housing prices first declined. Insiders of high-exposure banks were 20% more likely to sell stock than insiders of low-exposure banks. However, insider trading patterns of high- and low-exposure banks did not differ before 2006. I conclude that insiders of high-exposure banks revised their assessment of their banks’ investments following the reversal in the housing market.
Number of Pages in PDF File: 47
Keywords: insider trading, financial crisis, executive compensation
JEL Classification: G01, G14, G21working papers series
Date posted: November 22, 2011 ; Last revised: February 2, 2014
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