Disclosing and cooling-off: An analysis of insider trading rules

Jun Deng, Huifeng Pan, Hongjun Yan and Liyan Yang

Journal of Financial Economics, 2024, vol. 160, issue C

Abstract: We analyze two insider-trading regulations recently introduced by the Securities and Exchange Commission: mandatory disclosure and “cooling-off period”. The former requires insiders disclose trading plans at adoption, while the latter mandates a delay period before trading. These policies affect investors’ trading profits, risk sharing, and hence their welfare. If the insider has sufficiently large hedging needs, in contrast to the conventional wisdom from “sunshine trading”, disclosure reduces the welfare of all investors. In our calibration, a longer cooling-off period benefits speculators, and its implications for the insider and hedgers depend on whether the disclosure policy is already in place.

Keywords: Insider trading; Rule 10b5-1; Sunshine trading; Disclosure; Cooling-off period (search for similar items in EconPapers)
JEL-codes: D82 G14 G18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:160:y:2024:i:c:s0304405x24001363

DOI: 10.1016/j.jfineco.2024.103913

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