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Insider trading and price efficiency: Evidence from a betting exchange

Author

Listed:
  • Paolo Bizzozero

    () (Department of Business Administration, University of Zurich)

  • Raphael Flepp

    () (Department of Business Administration, University of Zurich)

  • Egon Franck

    () (Department of Business Administration, University of Zurich)

Abstract

How does insider trading affect price efficiency? We show that insider trading substantially contributes to the creation of efficient markets by promoting quick price discovery and improving the accuracy of prices. We use live-tennis betting data to isolate the activity of traders who have earlier access to important information. We find that prices start updating before the information about the winner of a set becomes public, which indicates the existence of insiders. Specifically, we measure that roughly 60% of the full subsequent price reaction and 70% of the total increase in the price accuracy occur in the insider trading window.

Suggested Citation

  • Paolo Bizzozero & Raphael Flepp & Egon Franck, 2017. " Insider trading and price efficiency: Evidence from a betting exchange," Working Papers 368, University of Zurich, Department of Business Administration (IBW).
  • Handle: RePEc:zrh:wpaper:368
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    References listed on IDEAS

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    More about this item

    Keywords

    Market effciency; insider trading; event study; betting;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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