Penal Law, Prosecution of Insider Trading, and the Informational Efficiency of Securities Markets

39 Pages Posted: 1 Jun 2011 Last revised: 27 Feb 2012

See all articles by Karl Ludwig Keiber

Karl Ludwig Keiber

European University Viadrina Frankfurt (Oder) - Department of Economics

Date Written: February 24, 2012

Abstract

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.

Keywords: Market microstructure, law and finance, insider trading, regulation, informational efficiency, price discovery

JEL Classification: G14, D82, K22

Suggested Citation

Keiber, Karl Ludwig, Penal Law, Prosecution of Insider Trading, and the Informational Efficiency of Securities Markets (February 24, 2012). Available at SSRN: https://ssrn.com/abstract=1851429 or http://dx.doi.org/10.2139/ssrn.1851429

Karl Ludwig Keiber (Contact Author)

European University Viadrina Frankfurt (Oder) - Department of Economics ( email )

Grosse Scharrnstr. 59
D-15230 Frankfurt (Oder)
Germany
+49-335-55342985 (Phone)
+49-335-55342357 (Fax)

HOME PAGE: http://www.wiwi.euv-frankfurt-o.de/keiber

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