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Does Insider Trading Raise Market Volatility?

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Author Info

  • Julan Du

    (Chinese University of Hong Kong)

  • Shang-Jin Wei

    (International Monetary Fund
    Brookings Institution)

Abstract

This paper studies the role of insider trading in explaining cross-country difference in stock market volatility. It introduces a new (albeit imperfect) measure of insider trading for 50 or so countries. The central finding is that countries with more prevalent insider trading do have more volatile stock markets, even after one controls for liquidity/maturity of the market, and the volatility of the underlying fundamentals (volatility of real output, and monetary and fiscal policies). Moreover, the effect of insider trading is quantitatively significant when compared with the effect of economic fundamentals.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 072002.

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Length: 32 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:hkm:wpaper:072002

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References

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Citations

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Cited by:
  1. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
  2. Genevieve Boyreau-Debray & Shang-Jin Wei, 2005. "Pitfalls of a State-Dominated Financial System: The Case of China," NBER Working Papers 11214, National Bureau of Economic Research, Inc.
  3. Esther Brio & Javier Perote, 2007. "What Enhances Insider Trading Profitability?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 35(2), pages 173-188, June.
  4. Yuko Hashimoto & Konstantin Wacker, 2012. "The Role of Risk and Information for International Capital Flows," IMF Working Papers 12/242, International Monetary Fund.
  5. Shang-Jin Wei & Genevieve Boyreau-Debray, 2004. "Can China Grow Faster? a Diagnosison the Fragmentation of the Domestic Capital Market," IMF Working Papers 04/76, International Monetary Fund.
  6. Laura Beny, 2006. "Do Investors Value Insider Trading Laws? International Evidence," William Davidson Institute Working Papers Series wp837, William Davidson Institute at the University of Michigan.
  7. Denis, David J. & Xu, Jin, 2013. "Insider trading restrictions and top executive compensation," Journal of Accounting and Economics, Elsevier, vol. 56(1), pages 91-112.
  8. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries: The Role of Corruption," NBER Working Papers 10093, National Bureau of Economic Research, Inc.
  9. Huang, Haizhou & Wei, Shang-Jin, 2005. "Monetary Policies for Developing Countries: The Role of Institutional Quality," CEPR Discussion Papers 4911, C.E.P.R. Discussion Papers.
  10. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries," IMF Working Papers 03/183, International Monetary Fund.
  11. Shang-Jin Wei & Eswar Prasad, 2005. "The Chinese Approach to Capital Inflows," IMF Working Papers 05/79, International Monetary Fund.
  12. Dai, Meixing & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2010. "Fiscal policy, institutional quality and central bank transparency," MPRA Paper 23766, University Library of Munich, Germany.
  13. Tong, Wilson H.S. & Zhang, Shaojun & Zhu, Yanjian, 2013. "Trading on inside information: Evidence from the share-structure reform in China," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1422-1436.
  14. Acharya, Viral V & Johnson, Tim, 2005. "Insider Trading in Credit Derivatives," CEPR Discussion Papers 5180, C.E.P.R. Discussion Papers.
  15. Madura, Jeff & Marciniak, Marek, 2014. "Bidder country characteristics and informed trading in U.S. targets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 256-284.
  16. Lau, Chi Keung Marco & Demir, Ender & Bilgin, Mehmet Huseyin, 2013. "Experience-based corporate corruption and stock market volatility: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 17(C), pages 1-13.

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