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

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  • Adebambo, Biljana
  • Brockman, Paul
  • Yan, Xuemin (Sterling)

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 nonfinancial 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 nonfinancial 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.

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  • Adebambo, Biljana & Brockman, Paul & Yan, Xuemin (Sterling), 2015. "Anticipating the 2007–2008 Financial Crisis: Who Knew What and When Did They Know It?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(4), pages 647-669, August.
    • Handle: RePEc:cup:jfinqa:v:50:y:2015:i:04:p:647-669_00
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    Cited by:

    1. Cziraki, Peter, 2018. "Trading by bank insiders before and during the 2007–2008 financial crisis," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 58-82.
    2. Kolasinski, Adam C. & Yang, Nan, 2018. "Managerial myopia and the mortgage meltdown," Journal of Financial Economics, Elsevier, vol. 128(3), pages 466-485.
    3. Chau, Michael & Lin, Chih-Yung & Lin, Tse-Chun, 2020. "Wisdom of crowds before the 2007–2009 global financial crisis," Journal of Financial Stability, Elsevier, vol. 48(C).
    4. Adhikari, Binay Kumar & Agrawal, Anup, 2016. "Does local religiosity matter for bank risk-taking?," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 272-293.
    5. Fabrizio Spargoli & Christian Upper, 2018. "Are banks opaque? Evidence from insider trading," BIS Working Papers 697, Bank for International Settlements.
    6. Jianfu Shen & Eddie C.M. Hui & Kwokyuen Fan, 2021. "Did Real Estate Professionals Anticipate the 2007-2008 Financial Crisis? Evidence from Insider Trading in the REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 63(1), pages 122-142, July.
    7. Partha Gangopadhyay & Ken C. Yook & Joseph D. Haley, 2019. "Bank bailouts and corporate insider trading during the financial crisis of 2007–2009," Review of Quantitative Finance and Accounting, Springer, vol. 52(1), pages 35-83, January.
    8. Mohamed M. Khalifa Tailab, 2020. "Using Importance-Performance Matrix Analysis to Evaluate the Financial Performance of American Banks During the Financial Crisis," SAGE Open, , vol. 10(1), pages 21582440209, January.
    9. Jacobs, Heiko, 2020. "Hype or help? Journalists’ perceptions of mispriced stocks," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 550-565.

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