Does Insider Trading Raise Market Volatility?

IMF Working Paper No. 03/51

HKIMR Working Paper No. 7/2002

42 Pages Posted: 28 Jan 2006

See all articles by Julan Du

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics

Shang-Jin Wei

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2003

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.

Keywords: insider trading, market volatility

JEL Classification: F3, G1

Suggested Citation

Du, Julan and Wei, Shang-Jin, Does Insider Trading Raise Market Volatility? (March 2003). IMF Working Paper No. 03/51, HKIMR Working Paper No. 7/2002, Available at SSRN: https://ssrn.com/abstract=879126

Julan Du (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Shang-Jin Wei

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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