Becker Meets Kyle: Inside Insider Trading

76 Pages Posted: 17 Mar 2018 Last revised: 2 Feb 2020

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Emiliano Pagnotta

Imperial College Business School

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2019

Abstract

How do illegal insiders trade on private information? Do they internalize legal risk? Using hand-collected data on insiders prosecuted by the SEC, we find that, consistent with Kyle (1985), insiders manage trade size and timing according to market conditions and the value of information. Gender, age, and profession play a lesser role. Various shocks to penalties and likelihood of prosecution show that insiders internalize legal risk by moderating aggressiveness, providing support to regulators' deterrence ability. Consistent with Becker (1968), following positive shocks to expected penalties, insiders concentrate on fewer signals of higher value. Thus, enforcement actions could hamper price informativeness.

Keywords: Private Information, Insider Trading, Trading Strategies, Liquidity, Asset Prices, Volume, Stock Markets, Option Markets, Volatility, SEC, Financial Crime

JEL Classification: D82, D83, G14, G18, G40, G41

Suggested Citation

Kacperczyk, Marcin T. and Pagnotta, Emiliano, Becker Meets Kyle: Inside Insider Trading (November 30, 2019). Available at SSRN: https://ssrn.com/abstract=3142006 or http://dx.doi.org/10.2139/ssrn.3142006

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Emiliano Pagnotta (Contact Author)

Imperial College Business School ( email )

Imperial College Business School, Tanaka Building
London, SW7 2AZ
Great Britain
+447478734028 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
475
Abstract Views
2,114
rank
64,660
PlumX Metrics