Insider trading regulation and trader migration

Robert Merl, Stefan Palan (), Dominik Schmidt and Thomas Stöckl

Journal of Financial Markets, 2023, vol. 66, issue C

Abstract: Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster informational efficiency. We study traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market causes both informed and uninformed traders to be more active in the unregulated market. This market, thus, sees more trading volume, lower spreads, and less mispricing. Nevertheless, uninformed traders suffer greater losses in unregulated markets, while informed traders profit from the absence of regulation.

Keywords: Experimental finance; Asset market; Insider trading regulation; Market share; Trader migration (search for similar items in EconPapers)
JEL-codes: C92 D82 G10 G12 G14 G18 G40 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:66:y:2023:i:c:s138641812300037x

DOI: 10.1016/j.finmar.2023.100839

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