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Market Reaction and Equity Market Efficiency: A Survey of the Insider Trading Law in South Africa


  • Kalu Ojah
  • Stella Muhanji
  • Andrew Myburg

    () (University of Witwatersrand)


We examine the market and firm-level effects of the effective insider trading prohibition recently initiated in South Africa – the Trading Act of 1999. We find that the law has increased the awareness and abhorrence of insider dealing as both criminal and illegal. Further, we find that the average publicly traded firm in South Africa experienced significant improvements in equity value efficiency and corporate governance post the initiation of the law (2000-2004). Importantly, we find that upon controlling for other determinants of cost of capital, effective prohibition of insider dealings still explains reduction in the cost of equity by about 6% per annum. In fact, the mere initiation of the law does not reduce cost of equity instead the reduction in cost of equity occurs due to enforcement. These findings suggest that similar emerging markets in Africa and other regions of the world can benefit from enacting such capital market governance laws.

Suggested Citation

  • Kalu Ojah & Stella Muhanji & Andrew Myburg, 2008. "Market Reaction and Equity Market Efficiency: A Survey of the Insider Trading Law in South Africa," The African Finance Journal, Africagrowth Institute, vol. 10(2), pages 1-28.
  • Handle: RePEc:afj:journl:v:10:y:2008:i:2:p:1-28

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    Cited by:

    1. Talosaga, Talosaga & Heatley, David & Howell, Bronwyn, 2011. "Can continuous disclosure improve the performance of State-Owned Enterprises?," Working Paper Series 4083, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law


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