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Insider Trading Laws and Stock Markets Around the World: An Empirical Contribution to the Theoretical Law and Economics Debate

65 Pages Posted: 25 Feb 2004  

Laura Nyantung Beny

University of Michigan Law School

Abstract

The primary goal of this Article is to bring empirical evidence to bear on the heretofore largely theoretical law and economics debate about insider trading. The Article first summarizes various agency, market, and contractual (or "Coasian") theories of insider trading propounded over the course of this longstanding debate. The Article then proposes three testable hypotheses regarding the relationship between insider trading laws and several measures of stock market performance. Exploiting the natural variation of international data, the Article finds that more stringent insider trading laws are generally associated with more dispersed equity ownership, greater stock price accuracy and greater stock market liquidity, controlling for various economic, legal and institutional factors. These results cast doubt on pure "Coasian" theories of insider trading and suggest the appropriate locus of academic and policy inquiries about the efficiency implications of insider trading and its regulation. Further empirical research is necessary, however, in order conclusively to resolve the perennial insider trading debate.

Keywords: insider trading, agency costs, market efficiency, stock markets, law and finance

JEL Classification: G15, G28, K22

Suggested Citation

Beny, Laura Nyantung, Insider Trading Laws and Stock Markets Around the World: An Empirical Contribution to the Theoretical Law and Economics Debate. University of Michigan Law School, Law and Economics Research Paper No. 04-004; Journal of Corporation Law, Forthcoming. Available at SSRN: https://ssrn.com/abstract=193070 or http://dx.doi.org/10.2139/ssrn.193070

Laura Nyantung Beny (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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