Insider Trading Laws and Stock Price Informativeness

62 Pages Posted: 26 May 2006

See all articles by Nuno Fernandes

Nuno Fernandes

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: January 2007

Abstract

We investigate the relation between a country's first-time enforcement of insider trading laws and stock price informativeness using data from 48 countries over 1980-2003. Enforcement of insider trading laws improves price informativeness, as measured by firm-specific stock return variation, but this increase is concentrated in developed markets. In emerging market countries, price informativeness changes insignificantly after the enforcement, as the important contribution of insiders in impounding information into stock prices largely disappears. The enforcement does not achieve the goal of improving price informativeness in countries with poor legal institutions. It does turn some private information into public information, thereby reducing the cost of equity in emerging markets.

Keywords: Insider trading laws, Market efficiency, Investor protection, Cost of equity

JEL Classification: G14, G38

Suggested Citation

Fernandes, Nuno and Ferreira, Miguel Almeida, Insider Trading Laws and Stock Price Informativeness (January 2007). EFA 2006 Zurich Meetings Paper; ECGI - Finance Working Paper No. 161/2007. Available at SSRN: https://ssrn.com/abstract=902962 or http://dx.doi.org/10.2139/ssrn.902962

Nuno Fernandes (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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