Insider trading: regulation, risk reallocation, and welfare
AbstractI argue in this paper that the imposition of insider trading regulations on a securities market generates not on1y a reallocation of wealth from insiders to liquidity traders, but also a reallocation of risk from the former to the latter. I further argue that, although the wealth reallocation has no impact on social welfare, under plausible assumptions, the risk reallocation imposes a cost on society.
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Insider trading; Securities Regulation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-13 (All new papers)
- NEP-MST-2011-07-13 (Market Microstructure)
- NEP-REG-2011-07-13 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hayne E. Leland., 1990.
"Insider Trading: Should It Be Prohibited?,"
Research Program in Finance Working Papers
RPF-195, University of California at Berkeley.
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"Insiders, Outsiders, and Market Breakdowns,"
Review of Financial Studies,
Society for Financial Studies, vol. 4(2), pages 255-82.
- Subrahmanyam, Avanidhar, 1991. "Risk Aversion, Market Liquidity, and Price Efficiency," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 416-41.
- Michael J. Fishman & Kathleen M. Hagerty, 1992. "Insider Trading and the Efficiency of Stock Prices," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 106-122, Spring.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
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