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Insider trading laws and price informativeness in emerging stock markets: The South African case

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  • Ojah, Kalu
  • Muhanji, Stella
  • Kodongo, Odongo

Abstract

We test the view that insider trading deters informativeness and, thereby, provide empirical evidence on the ramifications of insider trading legislation, particularly in an emerging market, that has hitherto received no research attention. Using the difference-in-differences identification strategy, we find that “effective insider trading law” improves stock price informativeness, a reflection of market efficiency, and that this efficiency is robust to both economic factors that affect market efficiency and the choice of control. Importantly, our results support the hypothesis that prohibition of insider trading elicits efficiency enhancement, particularly in emerging markets which are often characterized by weaker requisite institutional infrastructure than developed markets.

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  • Ojah, Kalu & Muhanji, Stella & Kodongo, Odongo, 2020. "Insider trading laws and price informativeness in emerging stock markets: The South African case," Emerging Markets Review, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:ememar:v:43:y:2020:i:c:s1566014119304352
    DOI: 10.1016/j.ememar.2020.100690
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    Cited by:

    1. Mazza, Paolo & Wang, Shiyu, 2021. "Corporate legal insider trading in China: Performance and determinants," International Review of Law and Economics, Elsevier, vol. 68(C).
    2. Mai, Nhat Chi, 2020. "Essays on the Vietnam Stock Market," OSF Preprints 3uaqt, Center for Open Science.
    3. Mazza, Paolo & Ruh, Benjamin, 2022. "The performance of corporate legal insider trading in the Korean market," International Review of Law and Economics, Elsevier, vol. 71(C).
    4. Chen, Rong & Geng, Heng (Griffin) & Lin, Hai & Nguyen, Phuong Thi Ly, 2021. "Liquidity, informed trading, and a market surveillance system: Evidence from the Vietnamese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Capital market governance; Insider trading; Stock price informativeness; Market efficiency; Emerging markets; Difference-in-differences; South Africa;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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