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The Law and Economics of Insider Trading: A Comprehensive Primer

Stephen M. Bainbridge

University of California, Los Angeles (UCLA) - School of Law

February 2001

Insider trading likely is one of the most common forms of securities fraud, yet it remains one of the most controversial aspects of securities regulation among legal (and economic) scholars. This paper provides a comprehensive overview of both the law of insider trading and the contested economic analysis thereof. The paper adopts a historical approach to the doctrinal aspects of insider trading, beginning with turn of the 20th Century state common law, and tracing the prohibition's evolution up to the most recent U.S. Supreme Court decisions under Rule 10b-5.

The paper then reviews the debate between those scholars favoring deregulation of insider trading, allowing corporations to set their own insider trading policies by contract, and those who contends that the property right to inside information should be assigned to the corporation without the right of contractual reassignment. The paper also reviews the public choice analysis of insider trading to show that the prohibition benefits market professionals and corporate managers rather than investors.

Number of Pages in PDF File: 84

Keywords: Insider trading, securities fraud

JEL Classification: G30, K22

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Date posted: March 13, 2001  

Suggested Citation

Bainbridge, Stephen M., The Law and Economics of Insider Trading: A Comprehensive Primer (February 2001). Available at SSRN: https://ssrn.com/abstract=261277 or http://dx.doi.org/10.2139/ssrn.261277

Contact Information

Stephen Mark Bainbridge (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-206-1599 (Phone)
310-825-6023 (Fax)
HOME PAGE: http://www.professorbainbridge.com
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