This paper documents that at the individual stock level, insiders' sales peak many months before a large drop in the stock price, while insiders' purchases peak only the month before a large jump.We provide a theoretical explanation for this phenomenon based on trading constraints and asymmetric...

This study first establishes a causal relation between insider trading and the likelihood of stock price crash occurrence, and then investigates potential channels through which the former influences the latter. Exploiting the initial enforcement of insider trading laws in a country as a natural...

This paper sheds new light on the role bank executives played in the financial crisis. It examines whether they foresaw the poor performance of their own bank by analyzing their insider trading patterns. Insider trading during 2006 predicts stock returns during the crisis: a portfolio strategy...

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 non-financial stocks over financial stocks. In contrast,...

We analyze the trading of corporate insiders at leading financial institutions during the 2007 to 2009 financial crisis. We find strong evidence of a relation between political connections and informed trading during the period in which TARP funds were disbursed, and that the relation is most...

This paper analyzes the impact of uncertainty on the spread of stock market crises, both theoretically and empirically. The effect of uncertainty about the fundamentals on investment decisions is an important cause of financial crises propagating across countries. Firstly, a coordination game on...

We analyze a rating agency's incentives to distort ratings in a model with a monopolistic profit maximizing rating agency, a continuum of heterogeneous firms, and a competitive market of risk-neutral investors. Firms sell bonds, the value of a firm's bond is known to the firm and observable by...

We construct a model of bubbles where an asset can be used as collateral primarily due to higher-order uncertainty: while both a lender and a borrower know that the intrinsic value of the asset is low, they may still believe that a “greater fool” exists who will purchase it at a much higher...

This paper examines the effect of trade secrets protection on stock price crash risk. Using an experimental setting with the Uniform Trade Secrets Act (UTSA), we find that firms headquartered in states with the UTSA tend to have higher stock price crash risk. The results are robust to...

This paper studies the effect of mandatory information disclosure on stock price crash risk using data on listed firms' private in-house meetings in the Chinese stock market. Utilizing the regulation implemented by the Shenzhen Stock Exchange in 2012, we use a difference-in-difference approach...