Do Insider Trading Laws Work?

47 Pages Posted: 15 Nov 2000

See all articles by Arturo Bris

Arturo Bris

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

Date Written: October 2000


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.

Keywords: Insider trading, takeovers, market regulation

JEL Classification: G38, G34, G15

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: or

Arturo Bris (Contact Author)

IMD International ( email )

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

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States