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Does Insider Trading Raise Market Volatility?

  • Julan Du
  • Shang-Jin Wei

This paper studies the role of insider trading in explaining cross-country differences in stock market volatility. It introduces a new measure of insider trading. 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 quantitatively significant when compared with the effect of economic fundamentals.

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File URL: http://www.nber.org/papers/w9541.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9541.

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Date of creation: Mar 2003
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Publication status: published as Du, Julan and Shang-Jin Wei. "Does Insider Trading Raise Market Volatility?," Economic Journal, 2004, v114(498,Oct), 916-942.
Handle: RePEc:nbr:nberwo:9541
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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
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