Are Banks Opaque? Evidence from Insider Trading

We use trades by US corporate insiders to investigate bank opacity, both in absolute terms and relative to other firms. On average, bank insider sales do not earn an abnormal return and do not predict stock returns. By contrast, bank insider purchases do, even though less than other firms. Our within-banking sector and over-time analyses also fail to provide evidence of greater opacity of banks vis-à-vis other firms. These results challenge conventional wisdom and suggest that, to assess bank opacity, the type of benchmark (transparency vs. other firms) and transaction/information (purchase/positive vs. sale/negative) are crucial