Anticipating the 2007–2008 Financial Crisis: Who Knew What and When Did They Know it?

43 Pages Posted: 7 Nov 2013

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Biljana Adebambo

University of San Diego

Xuemin Sterling Yan

University of Missouri - Columbia

Date Written: October 2013

Abstract

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

Brockman, Paul and Adebambo, Biljana and Yan, Xuemin Sterling, Anticipating the 2007–2008 Financial Crisis: Who Knew What and When Did They Know it? (October 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2350976

Paul Brockman

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Biljana Adebambo

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Xuemin Sterling Yan (Contact Author)

University of Missouri - Columbia ( email )

Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)

HOME PAGE: http://business.missouri.edu/yanx/

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