Anticipating the 2007–2008 Financial Crisis: Who Knew What and When Did They Know it?
43 Pages Posted: 7 Nov 2013
Date Written: October 2013
We examine the ability of three groups of informed market participants to anticipate the 2007-2008 financial crisis. Institutional investors and financial analysts exhibit some awareness of the impending crisis in their preference for non-financial stocks over financial stocks. In contrast, corporate insiders of financial firms appear to be completely unaware of the timing and extent of the financial crisis. Net purchases by managers of financial firms exceed those by managers of non-financial firms over the entire 2006-2008 period. Our results add considerable weight to the argument that the financial crisis was more a case of flawed judgment than flawed incentives.
Keywords: financial crisis; institutional investors; financial analysts; insiders
JEL Classification: G10, G14
Suggested Citation: Suggested Citation