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Asset markets with insider trading disclosure rule and reselling constraint: An experimental analysis

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  • Halim, Edward
  • Riyanto, Yohanes E.

Abstract

We investigate the impact of compulsory insider-trading disclosure and its combination with a mandatory holding rule on price predictability and asset mispricing. We modify the dynamic price-adjustment model to account for insiders’ private information. Our results show that insiders produce weakly-characterized price signals that induce a less than proportional price adjustment to the changes in the dividend value, in both markets with disclosure rule and holding requirement, in comparison with unregulated markets. A shift in insiders’ strategies from information-motivated to liquidity-motivated trading appears to fuel the impairment of price predictability in regulated markets. The exacerbation of asset mispricing in markets with holding restriction is characterized by a growth in the speculative transactions and loss-making trading proposals.

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  • Halim, Edward & Riyanto, Yohanes E., 2020. "Asset markets with insider trading disclosure rule and reselling constraint: An experimental analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:dyncon:v:110:y:2020:i:c:s0165188919301447
    DOI: 10.1016/j.jedc.2019.103745
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    Cited by:

    1. Robert Merl, 2021. "Literature Review of Experimental Asset Markets with Insiders," Working Paper Series, Social and Economic Sciences 2021-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    2. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).

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    More about this item

    Keywords

    Laboratory experiment; Asset market; Insider; Disclosure; Holding requirement; Asymmetric information;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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