How Harmful Is Insider Trading for Outsiders? Evidence from the Eighteenth Century
AFA 2022 Meetings Paper, EFA 2022 Meetings Paper
51 Pages Posted: 6 Jan 2022 Last revised: 5 May 2022
Date Written: January 5, 2022
This paper provides evidence on the financial consequences of insider trading for outsiders. We collect a novel data set that contains all equity trades of all corporate insiders and outsiders in an era without restrictions on informed trading. These data features allow us to study the profitability of insider trades and the expected loss outsiders incur due to insider trading. We show that access to private information creates a performance gap of 7% per year between insiders and outsiders. Nonetheless, outsiders' unconditional expected losses from insider trading are small because the probability of trading with an insider is low.
Keywords: insider trading, asymmetric information, financial history
JEL Classification: D82, G10, G12, G14
Suggested Citation: Suggested Citation