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Optimal Contracting and Insider Trading Restrictions

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  • Fischer, Paul E
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    Abstract

    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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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 47 (1992)
    Issue (Month): 2 (June)
    Pages: 673-94

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    Handle: RePEc:bla:jfinan:v:47:y:1992:i:2:p:673-94

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    Cited by:
    1. Joon Song, 2007. "Futures Market: Contractual Arrangement to Restrain Moral Hazard in Teams," Economics Discussion Papers 633, University of Essex, Department of Economics.
    2. Joon Song, 2008. "Perks: Contractual Arrangements to Restrain Moral Hazard," Economics Discussion Papers 650, University of Essex, Department of Economics.
    3. Maug, Ernst, 2002. "Insider trading legislation and corporate governance," European Economic Review, Elsevier, vol. 46(9), pages 1569-1597, October.
    4. Durnev, Art A. & Nain, Amrita S., 2007. "Does insider trading regulation deter private information trading? International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 409-433, November.
    5. Art Durnev & Amrita Nain, . "The Unanticipated Effects of Insider Trading Regulation," American Law & Economics Association Annual Meetings 1023, American Law & Economics Association.
    6. Art A. Durnev & Amrita S. Nain, 2007. "The Effectiveness of Insider Trading Regulation: International Evidence," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 5(1), pages 10-15, 05.
    7. Andrea M. Buffa & Giovanna Nicodano, 2008. "Should Insider Trading be Prohibited when Share Repurchases are Allowed?," Review of Finance, European Finance Association, vol. 12(4), pages 735-765.
    8. Narayanan, Ranga, 2000. "Insider trading and the voluntary disclosure of information by firms," Journal of Banking & Finance, Elsevier, vol. 24(3), pages 395-425, March.

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