The World Price of Insider Trading

Abstract

The existence and the enforcement of insider trading laws in stock markets is a phenomenon of the 1990s. A study of the 103 countries that have stock markets reveals that insider trading laws exist in 87 of them, but enforcement - as evidenced by prosecutions - has taken place in only 38 of them. Before 1990, the respective numbers were 34 and 9. Does this matter? We find that the cost of equity in a country, after controlling for a number of other variables, does not change after the introduction of insider trading laws, but decreases significantly after the first prosecution.

Keywords: Insider trading, cost of equity, international finance

JEL Classification: G14, G15