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

Published online by Cambridge University Press:  13 November 2015

Biljana Adebambo ,
Paul Brockman  and
Xuemin (Sterling) Yan
Biljana Adebambo
Affiliation:
bnikolic@sandiego.edu, University of San Diego, School of Business Administration, San Diego, CA 92110
Paul Brockman
Affiliation:
pab309@lehigh.edu, Lehigh University, College of Business and Economics, Bethlehem, PA 18015
Xuemin (Sterling) Yan*
Affiliation:
yanx@missouri.edu, University of Missouri, Trulaske College of Business, Columbia, MO 65211.
*
*Corresponding author: yanx@missouri.edu
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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.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 4 , August 2015 , pp. 647 - 669
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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