Insider Trading and Macroeconomic Risk
44 Pages Posted: 5 Jan 2021
Date Written: November 16, 2020
This Article suggests a link between insider trading regulation and macroeconomic risk. Current securities laws do not explicitly prohibit a company insider from trading in the stocks of her company’s suppliers, customers, competitors, and complementors (based on material, non-public information regarding her company). But such “network trades” can be highly profitable, and as a result, can encourage corporate risk-taking by company insiders. As insights from network theory reveal that such risk-taking incentives will be significantly greater among insiders in industries that have a larger impact on macroeconomic risk, the possibility of network trades increases macroeconomic risk.
Keywords: insider trading; macroeconomic risk; network theory; systematically important financial institutions; risk-taking; network trades; shadow trades; aggregate fluctuations
JEL Classification: D85, E02, E32, K2, K22, L14
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