When chasing the offender hurts the victim: The case of insider legislation

Stefan Palan () and Thomas Stöckl

Journal of Financial Markets, 2017, vol. 35, issue C, 104-129

Abstract: Backers and opponents argue over the pros and cons of legislation forbidding trading by informed insiders. Yet a lack of reliable empirical data about the effects of such legislation inhibits a conclusive scientific evaluation. We overcome this problem by resorting to laboratory markets and find that insider legislation has significant negative effects on multiple market dimensions: under insider legislation, (1) markets are less liquid, (2) markets are less informationally efficient, and (3) uninformed traders׳ earnings (before redistribution of illicit insider gains) are lower.

Keywords: Insider legislation; Asset market; Price efficiency; Trading behavior; Experimental finance (search for similar items in EconPapers)
JEL-codes: C92 D82 G12 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:35:y:2017:i:c:p:104-129

DOI: 10.1016/j.finmar.2016.07.002

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