Insider trading: regulation, securities markets, and welfare under risk aversion

Javier Estrada

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: I analyze in this paper the impact of insider trading regulation (ITR) on a securities market and on social welfare. I argue below that the imposition of ITR forces a reallocation of wealth and risk that decreases social welfare. Three reasons explain this resulto First, ITR increases the volatility of securities prices, thus making the market more risky; second, it worsens the risk sharing among investors; and, third, it diverts resources from the productive sector of the economy. Further, although I formally establish conditions under which ITR makes society better off, largue that those conditions cannot be used to justify the imposition of this regulation.

Keywords: Insider; trading; Securities; Regulation (search for similar items in EconPapers)
Date: 1995-02
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:3901

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