Are banks more opaque? Evidence from insider trading

We investigate whether banks are more opaque than other firms using data on trades by insiders. Our findings indicate that purchases by bank insiders earn a higher return than purchases by other firms’ insiders only at short horizons. By contrast, the return on sales by bank insiders is consistently greater over all the horizons up to 180 days. Returns on insider trading do not substantially change during times of crisis. Moreover, the size of the loan book and loan loss allowance are the main determinants of the cross sectional variation in the returns on purchases and sales by bank insiders, respectively. Overall, our findings suggest a greater opacity of banks especially with regards to negative information.