How Harmful Is Insider Trading for Outsiders? Evidence from the Eighteenth Century

AFA 2022 Meetings Paper

51 Pages Posted: 6 Jan 2022

See all articles by Mathijs Cosemans

Mathijs Cosemans

Erasmus University - Rotterdam School of Management

Rik Frehen

Tilburg University - Department of Finance

Date Written: January 5, 2022

Abstract

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

Cosemans, Mathijs and Frehen, Rik, How Harmful Is Insider Trading for Outsiders? Evidence from the Eighteenth Century (January 5, 2022). AFA 2022 Meetings Paper, Available at SSRN: https://ssrn.com/abstract=4001612 or http://dx.doi.org/10.2139/ssrn.4001612

Mathijs Cosemans (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

Burgemeester Oudlaan 50
Rotterdam
Netherlands
+31104082371 (Phone)
+31104089017 (Fax)

HOME PAGE: http://www.mathijscosemans.com

Rik Frehen

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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