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Anticipating the financial crisis: evidence from insider trading in banks

Title	Anticipating the financial crisis: evidence from insider trading in banks
Author	Akın, Özlem, Marín, J. M., Peydro, J. - L.
Publication Date:	2020-04
Publication Place	- Oxford University Press
Type	Periodical
Language	English
Digital	Yes
Manuscript	No
Library:	Özyeğin University
Library Asset ID	0266-4658
Record ID	f5411eb0-d764-48ea-8995-604723930eef
Library Location	International Finance
Date	2020-04
Notes	Spanish Ministry of Economics and Competitiveness ; European Research Council (ERC) ; Spanish Ministry of Economy and Competitiveness ; Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centres of Excellence in RD
Sample Text	Banking crises are recurrent phenomena, often induced by excessive bank risk-taking, which may be due to behavioural reasons (over-optimistic banks neglecting risks) and to conflicts of interest between bank shareholders/managers and debtholders/taxpayers (banks exploiting moral hazard). We test whether US banks' stock returns in the 2007-8 financial crisis are associated with bank insiders' sales of their own bank's shares in the period prior to 2006Q2 (the peak and reversal in real estate prices). We find that top-five executives' sales of shares predict bank performance during the crisis. Interestingly, effects are insignificant the sales of independent directors and other officers. Moreover, the top-five executives' impact is stronger for banks with higher exposure to the real estate bubble, where a one standard deviation increase of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. Finally, even though bankers in riskier banks sold more shares (furthering their own interests), they did not change their bank's policies, for example, by reducing bank-level exposure to real estate. The informational content of bank insider trading before the crisis suggests that insiders knew that their banks were taking excessive risks, which has important implications for theory, public policy and the understanding of crises, as well as a supervisory tool for early warning signals.
Cilt	35

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Anticipating the financial crisis: evidence from insider trading in banks

Author Akın, Özlem, Marín, J. M., Peydro, J. - L.

Publication Date 2020-04

Publication Place - Oxford University Press

Type Periodical

Language English

Digital Yes

Manuscript No

Library Özyeğin University

Library Asset ID 0266-4658

Record ID f5411eb0-d764-48ea-8995-604723930eef

Library Location International Finance

Date 2020-04

Notes Spanish Ministry of Economics and Competitiveness ; European Research Council (ERC) ; Spanish Ministry of Economy and Competitiveness ; Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centres of Excellence in RD

Sample Text Banking crises are recurrent phenomena, often induced by excessive bank risk-taking, which may be due to behavioural reasons (over-optimistic banks neglecting risks) and to conflicts of interest between bank shareholders/managers and debtholders/taxpayers (banks exploiting moral hazard). We test whether US banks' stock returns in the 2007-8 financial crisis are associated with bank insiders' sales of their own bank's shares in the period prior to 2006Q2 (the peak and reversal in real estate prices). We find that top-five executives' sales of shares predict bank performance during the crisis. Interestingly, effects are insignificant the sales of independent directors and other officers. Moreover, the top-five executives' impact is stronger for banks with higher exposure to the real estate bubble, where a one standard deviation increase of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. Finally, even though bankers in riskier banks sold more shares (furthering their own interests), they did not change their bank's policies, for example, by reducing bank-level exposure to real estate. The informational content of bank insider trading before the crisis suggests that insiders knew that their banks were taking excessive risks, which has important implications for theory, public policy and the understanding of crises, as well as a supervisory tool for early warning signals.

Cilt 35