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Strategic insider trading and its consequences for outsiders: Evidence from the eighteenth century

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  • Cosemans, Mathijs
  • Frehen, Rik

Abstract

This paper uses hand-collected historical data to provide empirical evidence on the strategic trading behavior of insiders and its consequences for outsiders. Specifically, we collect all equity trades of all insiders and outsiders in an era without legal restrictions on insider trading and a market where trading is non-anonymous. We find that access to private information creates a significant gap between the post-trade returns of insiders and outsiders. Consistent with theory, insiders capitalize on their information advantage by hiding their identity and timing their trades. Both experienced and inexperienced outsiders face expected losses due to this strategic insider trading.

Suggested Citation

  • Cosemans, Mathijs & Frehen, Rik, 2025. "Strategic insider trading and its consequences for outsiders: Evidence from the eighteenth century," Journal of Financial Economics, Elsevier, vol. 164(C).
    • Handle: RePEc:eee:jfinec:v:164:y:2025:i:c:s0304405x24001971
    DOI: 10.1016/j.jfineco.2024.103974
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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