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Insider Trading: What Really Protects U.S. Investors?

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  • White, Roger M.

Abstract

I examine the ability of the U.S. investor protection regime to limit insider trading returns, absent Section 16(b) of the Securities Exchange Act of 1934 (the short-swing rule). I find that in this setting, U.S. insiders execute short-swing trades that i) beat the market by approximately 15 basis points per day and ii) systematically divest ahead of disappointing earnings announcements. These results indicate that the bright-line rule restricting short-horizon round-trip insider trading plays a substantial role in protecting outside investors from privately informed insiders in the United States.

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  • White, Roger M., 2020. "Insider Trading: What Really Protects U.S. Investors?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(4), pages 1305-1332, June.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:4:p:1305-1332_8
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    Cited by:

    1. Lee, Dongyeol & Kim, Woo Chang, 2021. "Cost of shareholder engagement by institutional investors under short-swing profit rule," Finance Research Letters, Elsevier, vol. 40(C).

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