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Does Insider Trading Raise Market Volatility?

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  • Shang-Jin Wei
  • Julan Du
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    Abstract

    This paper studies the role of insider trading in explaining cross-country differences in stock market volatility. The central finding is that countries with more prevalent insider trading have more volatile stock markets, even after one controls for liquidity/maturity of the market and the volatility of the underlying fundamentals (volatility of real output and of monetary and fiscal policies). Moreover, the effect of insider trading is quantitively significant when compared with the effect of economic fundamentals.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/51.

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    Length: 42
    Date of creation: 01 Mar 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/51
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    Keywords: International finance; insider trading; market volatility; stock market; market returns; inflation rate; stock exchange; General Financial Markets;

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    Cited by:

    1. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries: The Role of Corruption," NBER Working Papers 10093, National Bureau of Economic Research, Inc.

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