Insider Trading Restrictions and Informed Trading in Peer Stocks

Prachi Deuskar (), Aditi Khatri () and Jayanthi Sunder ()
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Prachi Deuskar: Finance Area, Indian School of Business, Hyderabad 500111, India
Aditi Khatri: Cornerstone Research, New York, New York 10022
Jayanthi Sunder: Dhaliwal-Reidy School of Accountancy, University of Arizona, Tucson, Arizona 85721

Management Science, 2025, vol. 71, issue 3, 2390-2412

Abstract: Using a uniquely constructed data set of trades by corporate insiders in all stocks, we find that, after insider trading regulations become stricter, insiders are 20% more likely to trade in peer stocks and that such trades become more profitable. The increase in both the probability and profitability of peer-stock trades is driven by the insider’s information that is fungible to industry peers. Stricter insider trading laws are designed to improve liquidity and price informativeness in capital markets. We show that peer trading dampens these intended benefits of the insider trading regulation.

Keywords: insider trading regulation; informed trading; information fungibility; liquidity; price informativeness (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:3:p:2390-2412

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