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Do Insider Trading Laws Work?

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

October 2000

EFA 2001 Barcelona Meetings; Yale ICF Working Paper No. 00-19; Yale SOM Working Paper No. ICF - 00-19

By calculating an estimated measure of undetected insider trading, this paper shows that profits made by informed corporate insiders prior to tender offer announcements increase after the first enforcement of insider trading laws. I analyze the effects of Insider Trading regulation on a sample of 5,099 acquisitions in 56 different countries, and estimate the profits due to insider trading from the abnormal volume in the weeks prior to the announcement, under the assumption that insiders purchase those shares at the prevailing price and hold them until the public announcement. I find that laws that prosecute insider trading fail to eliminate profits made by insiders, and make acquisitions more expensive. Therefore, by increasing the market reaction to an acquisition, insider trading laws make it profitable to violate them.

Number of Pages in PDF File: 47

Keywords: Insider trading, takeovers, market regulation

JEL Classification: G38, G34, G15

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Date posted: November 15, 2000  

Suggested Citation

Bris, Arturo, Do Insider Trading Laws Work? (October 2000). EFA 2001 Barcelona Meetings; Yale ICF Working Paper No. 00-19; Yale SOM Working Paper No. ICF - 00-19. Available at SSRN: http://ssrn.com/abstract=248417 or http://dx.doi.org/10.2139/ssrn.248417

Contact Information

Arturo Bris (Contact Author)
IMD International ( email )
Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
European Corporate Governance Institute (ECGI)
B-1050 Brussels
HOME PAGE: http://www.ecgi.org
Yale University - International Center for Finance ( email )
Box 208200
New Haven, CT 06520
United States

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Citations:  36
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