Penal Law, Prosecution of Insider Trading, and the Informational Efficiency of Securities Markets
Karl Ludwig Keiber
European University Viadrina Frankfurt (Oder) - Department of Economics
February 24, 2012
This paper analyzes the impact of both penal law and prosecution of insider trading on the informational efficiency of securities markets. We show that increasing the severity of penalties to insider trading as well as making insider prosecution more efficient might improve the price discovery process in securities markets. Put differently, banning insider trading from the securities markets by stricter penal laws and/or a more efficient prosecution does not harm the informational efficiency of securities markets in general. If beneficial, we show that regulators of securities markets should opt for developing the stronger leg of insider regulation in order to improve the informational efficiency of the securities market the most. We illustrate that the findings apply to a broad range of securities markets under asymmetric information.
Number of Pages in PDF File: 39
Keywords: Market microstructure, law and finance, insider trading, regulation, informational efficiency, price discovery
JEL Classification: G14, D82, K22working papers series
Date posted: June 1, 2011 ; Last revised: February 27, 2012
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