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Why Regulate Insider Trading? Evidence from the First Great Merger Wave (1897-1903)

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  • Ajeyo Banerjee
  • E. Woodrow Eckard

Abstract

We use event-time methodology to study legal insider trading associated with mergers circa 1900. For mergers with "prospective" disclosures similar to today's, we find substantial value gains at announcement, implying participation by "outside" shareholders despite the absence of insider constraints. Furthermore, preannouncement stock-price runups, relative to total value gain, are no more than those observed for modern mergers. Insider regulation apparently has produced little benefit for outsiders, with the inside information-pricing function and related gains shifting to external "information specialists." Other results suggest market penalties for nondisclosure; i.e., insider trading is less successful in a restricted information environment.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.91.5.1329
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 5 (December)
Pages: 1329-1349

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Handle: RePEc:aea:aecrev:v:91:y:2001:i:5:p:1329-1349

Note: DOI: 10.1257/aer.91.5.1329
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References

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  1. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June.
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Citations

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Cited by:
  1. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2013. "High frequency trading and end-of-day price dislocation," CFS Working Paper Series 2013/16, Center for Financial Studies (CFS).
  2. repec:ebl:ecbull:v:7:y:2008:i:2:p:1-7 is not listed on IDEAS
  3. Frédéric Demerens & Dorra Najar & Jean-Louis Paré & Jean Redis, 2013. "Typology of stock market offenses in France: An analysis of sanctions by the AMF since 2006," Post-Print hal-00992928, HAL.
  4. Frédéric Demerens & Dorra Najar & Jean-Louis Paré & Jean Redis, 2014. "Typology of stock market offenses in France- An analysis of sanctions by the AMF since 2006," Working Papers 2014-072, Department of Research, Ipag Business School.
  5. Gerhard Kling, 2008. "Disclosure of mergers without regulatory restrictions: Insider trading in pre-1914 Germany," Economics Bulletin, AccessEcon, vol. 7(2), pages 1-7.

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