This paper compares four scenarios of a model in which, for the possible presence of tippees, firm insiders may not be the only persons having inside information. The four scenarios are that of free insider trading, that with a ban on insider trading, that of observable insider trading, and that with full disclosure of information. Each of these scenarios is shown to be strictly more efficient than the one before so long as there is a positive probability that a tippee exists. The paper sheds some light on why and how insider trading should be regulated, and also on the role of the disclosure system in the overall scheme of securities regulation.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Oct 23, 2007
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