What is it about?
The existence and the enforcement of insider trading laws in stock markets is a phenomenon of the 1990s. A study of the 103 countries that have stock markets reveals that insider trading laws exist in 87 of them, but enforcement—as evidenced by prosecutions—has taken place in only 38 of them. Before 1990, the respective numbers were 34 and 9. We find that the cost of equity in a country, after controlling for a number of other variables, does not change after the introduction of insider trading laws, but decreases significantly after the first prosecution.
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Why is it important?
This paper is the first paper which collects information about the existence and enforcement of insider trading laws in all countries that have stock markets. It is also the first paper that shows that the existence of the law does not affect share prices, but the enforcement of the law increases share prices. The paper was featured in the Economist on January 22, 2000 and in the Financial Times on April 12, 2001.
Perspectives
The information collection in this paper took three years. It was worth it. I consider this paper to be my most important paper.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: The World Price of Insider Trading, The Journal of Finance, February 2002, Wiley,
DOI: 10.1111/1540-6261.00416.
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