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The ability to trade by insiders (selling shares of their own bank when they anticipate that their excessive risk-taking may lead to problems) may exacerbate conflicts of interest. Banning trading by bank insiders may endogenously result in lower excessive risk-taking by banks and operate as a partial substitute for bank capital regulation or macroprudential policies.
- José-Luis Peydró
Mar 18, 2020 · If bank insiders understood the risks that they were taking, and did not reduce the bank’s risk exposure, we should find that, compared with bank insiders in less risky banks, insiders in the riskier group sold more shares prior to the public ‘bad news’ in the real estate sector (the peak and reversal in real estate prices that became ...
Nov 17, 2020 · If bank insiders understood the risks they were taking and did not reduce the bank’s risk exposure, we should find that bank insiders in the riskier banks (the ones with the more negative expected returns before the crisis given the insiders’ private information and with the worse returns during the crisis) should have sold more shares prior to the public bad news in the real estate sector ...
- Ozlem Akin, José María Marín, José-Luis Peydró
- 2020
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.
bank returns were very poor during the crisis), there was substantial bank hetero-geneity in performance (some banks even failed) as high risk-taking was not uni-form across banks (Beltratti and Stulz, 2012). If bank insiders understood the risks they were taking, and risk exposure at the bank level was not reduced, we should
- Ozlem Akin, José María Marín, José-Luis Peydró
- 2020
Jul 21, 2016 · These views of why banks take on excessive risk are testable. In a recent paper we tackle this question by providing sector-wide evidence from US. We examine what bank insiders were doing before the crisis and use executives’ trading with their own bank shares as a proxy for their understanding of risk before the crisis hit in 2007-08.
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Do bank insiders understand the risks they were taking?
Did bank insiders know that banks were taking excessive risks?
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Did bank insiders sell their own shares during the 2007–08 crisis?
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Do bank insiders contribute to the standard agency problem?
If bank insiders understood the risks they were taking, and risk exposure at the bank level was not reduced, we should find that bank insiders in the riskiest banks (the ones with worse returns during the crisis) as compared to bank insiders in less risky banks should have sold more shares prior to the public bad news in the real estate sector ...
