Restrictions on trading by insider agents are analyzed using an optimal contracting framework. Prohibition of insider trading is shown to be Pareto preferred if, and only if, a revelation or moral hazard problem exists. If prohibition of insider trading is valuable, then trade registration with a delay is shown to be as valuable as a complete prohibition. Short-selling restrictions, however, are generally of less value than complete prohibition. Finally, regulation of insider agent trading by governmental institutions and/or professional associations is discussed. Copyright 1992 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 47 (1992) Issue (Month): 2 (June) Pages: 673-94 Download reference. The following formats are available: HTML,
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