Insider Trading Laws and Stock Price Informativeness

Posted: 13 Apr 2009

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Nuno Fernandes

Catolica Lisbon School of Business and Economics; IMD International

Multiple version iconThere are 3 versions of this paper

Date Written: May 2009

Abstract

We investigate the relation between a country’s first-time enforcement of insider trading laws and stock price informativeness using data from 48 countries over 1980-2003. Enforcement of insider trading laws improves price informativeness, as measured by firm-specific stock return variation, but this increase is concentrated in developed markets. In emerging market countries, price informativeness changes insignificantly after the enforcement, as the important contribution of insiders in impounding information into stock prices largely disappears. The enforcement does not achieve the goal of improving price informativeness in countries with poor legal institutions. It does turn some private information into public information, thereby reducing the cost of equity in emerging markets.

Keywords: G14, G38

Suggested Citation

Ferreira, Miguel Almeida and Fernandes, Nuno, Insider Trading Laws and Stock Price Informativeness (May 2009). The Review of Financial Studies, Vol. 22, Issue 5, pp. 1845-1887, 2009. Available at SSRN: https://ssrn.com/abstract=1376205 or http://dx.doi.org/hhn066

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nuno Fernandes

Catolica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

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