The primary goal of this article is to bring empirical evidence to bear on the largely theoretical law and economics debate about insider trading. The article first summarizes various agency cost and market theories of insider trading propounded over the course of this perennial debate. The article then proposes three testable hypotheses regarding the relationship between insider trading laws and several measures of stock market performance. Using international data, the paper finds that more stringent insider trading laws are generally associated with more dispersed equity ownership, greater stock price accuracy and greater stock market liquidity. These results suggest the appropriate locus of academic and policy inquiries about the efficiency implications of insider trading.
Date of this Version
Laura N. Beny, "Insider Trading Laws and Stock Markets Around the World (Former title: Do Insider Trading Laws Matter? Some Preliminary Comparative Evidence)" (September 2006). University of Michigan Program in Law and Economics Archive: 2003-2009. Working Paper 35.