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Insider trading regulation and trader migration

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  • Merl, Robert
  • Palan, Stefan
  • Schmidt, Dominik
  • Stöckl, Thomas

Abstract

Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster informational efficiency. We study traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market causes both informed and uninformed traders to be more active in the unregulated market. This market, thus, sees more trading volume, lower spreads, and less mispricing. Nevertheless, uninformed traders suffer greater losses in unregulated markets, while informed traders profit from the absence of regulation.

Suggested Citation

  • Merl, Robert & Palan, Stefan & Schmidt, Dominik & Stöckl, Thomas, 2023. "Insider trading regulation and trader migration," Journal of Financial Markets, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finmar:v:66:y:2023:i:c:s138641812300037x
    DOI: 10.1016/j.finmar.2023.100839
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    More about this item

    Keywords

    Experimental finance; Asset market; Insider trading regulation; Market share; Trader migration;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G40 - Financial Economics - - Behavioral Finance - - - General

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