What Do Bankers Know?

We examine insider trades of bankers as a measure of how much they know relative to outsiders. In contrast to trades of insiders in non-financial firms, trades by bankers are less informative. Although bankers are relatively better at timing their sales, they earn negative long-run abnormal returns on their purchases. This is in marked contrast to insiders in non-financial firms. Even though banks are supposedly more opaque during the crisis, bank insider trades are still relatively uninformative during this period. These results are not driven by differences in idiosyncratic volatility, firm size, governance and compensation structures or routine versus opportunistic trades. Our results suggest that even if banks are transparent according to many standard measures, they are difficult to understand — even for insiders.