The effect of insider trading laws and enforcement on stock market transaction cost

Frank O. Kwabi () and Agyenim Boateng ()
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Frank O. Kwabi: De Montfort University
Agyenim Boateng: De Montfort University

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 3, No 5, 939-964

Abstract: Abstract Theoretical arguments suggest that as countries enact insider trading laws and complement them with enforcement, stock market information risk reduces and investor participation increases, and this will therefore have a negative effect on liquidity trading cost. Consistent with this expectation, based on panel data comprised of 32 countries for the period 2001–2015, we find that stringent insider trading laws and enforcement reduce stock market transaction cost. However, in countries where investor protection is poor, our results show that stringent insider trading laws have no effect on liquidity trading cost. We further find that stringent insider trading laws interact with institutional quality to reduce liquidity trading cost. Our findings are robust to difference-in-differences based on the 2008 global financial crises. The overall evidence implies that market participants will experience lower liquidity trading cost if insider trading laws are enforced.

Keywords: Insider trading laws; Enforcement; Stock market transaction cost; Property rights protection (search for similar items in EconPapers)
JEL-codes: F3 G1 K4 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-020-00914-9

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