Trading Stock on Inside Information

Kamil Mazurkiewicz and Elzbieta Wronska-Bukalska
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Kamil Mazurkiewicz: Maria Curie Sklodowska University, Poland
Elzbieta Wronska-Bukalska: Maria Curie Sklodowska University, Poland

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Abstract: The main subject of this paper is insider trading (trading on undisclosed information). Inside information is the result of separation of ownership and management. Both parties possess different information (asymmetric information) and managers hold more thorough knowledge on the company than outside investors. The primary explanation of asymmetric information on the company between directors and investors is provided by the agency theory. It states that asymmetric information is an inherent element of every corporate that separates ownership and management. There are different ways of mitigating this asymmetric information though it is not possible to eliminate it. One way of mitigating is the obligation to publish important information on the company. Trading on disclosed information is a prerequisite for efficient market and fair trade. It is rudimentary for every market to be efficient to allow allocation of the resources in an optimal way. In most countries trading on undisclosed information is illegal. The article aims to identify the number of insider trading on different stock exchange markets. The article analyses the numbers of insider trading cases from three stock exchanges in three different countries (Poland, the US, and China). The measure is based against the total number of issuers to make it more relative. These countries differ largely; they have got different cultures, corporate government systems, insider trading laws. While comparing these three different countries, we found similarities in the number of insider trading cases.

Keywords: insider trading; agency theory; market efficiency; knowledge; information; intelectual capital (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:tkp:mklp15:171-179

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