Market Imperfections and Regulatory Intervention: The Case of Insider Trading Regulation in the Indian Stock

XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM)

41 Pages Posted: 2 May 2013

See all articles by Yogesh Kumar Chauhan

Yogesh Kumar Chauhan

The Icfai Business School

Kiran Kumar Kotha

University of Mumbai - National Institute of Securities Markets

Vijaya B. Marisetty

RMIT University; Financial Research Network (FIRN)

Date Written: December 21, 2012

Abstract

This paper’s aim is two-fold. First, to investigate whether regulatory intervention, to improve insider trading transparency, leads to higher information production. Second, to understand how market imperfections can distort uniform impact expected out of regulatory intervention. We use Indian stock market regulator-SEBI’s regulatory intervention on insider trading as a natural experiment for our investigation.

Using 22,571 insider trades, that occurred between 2007 to 2011, we report the following main findings: (1) Our estimates show that, Firm Officers, on average, made around Rs.4 profit per share more than ordinary shareholders for every round trip transaction during pre-regulatory intervention period. Regulatory intervention reduces such profiteering activity.

(2) Regulatory intervention significantly improved information production associated with insider trades. (3) Market imperfections in the form of variations in firm organisation structure and competition environment, can explain lack of uniform impact due to regulatory intervention. Our results lead us to conclude that regulatory intervention is generally effective (Brochet, 2010), however the efficacy cannot be uniform unless regulatory intervention goes hand-in-hand with regulatory investment and coordination aimed at addressing market imperfections (Fernandes and Ferreira, 2008).

Keywords: Insider trading, Product market competition, Business groups, SEBI

JEL Classification: G23

Suggested Citation

Chauhan, Yogesh Kumar and Kotha, Kiran Kumar and Marisetty, Vijaya B., Market Imperfections and Regulatory Intervention: The Case of Insider Trading Regulation in the Indian Stock (December 21, 2012). XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM) . Available at SSRN: https://ssrn.com/abstract=2258280 or http://dx.doi.org/10.2139/ssrn.2258280

Yogesh Kumar Chauhan (Contact Author)

The Icfai Business School ( email )

Hyderabad
Hyderabad, 500 034
India

Kiran Kumar Kotha

University of Mumbai - National Institute of Securities Markets ( email )

Plot No. 82, Sector - 17
Mumbai, 400 705
India

Vijaya B. Marisetty

RMIT University ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Register to save articles to
your library

Register

Paper statistics

Downloads
91
Abstract Views
749
rank
281,588
PlumX Metrics