Economics, Econometrics and Finance
4 years ago

Insider trading rules lead to excess volatility in securities prices.

2 views
International Journal of Theoretical and Applied Finance
INSIDER TRADING RULES AND PRICE FORMATION IN SECURITIES MARKETS: AN ENTROPY ANALYSIS OF STRATEGIC TRADING
Karl Ludwig Keiber

Paper Summary

Insider trading rules affect how prices are set in the stock market. By using information theory, researchers found that strict rules can harm market liquidity. The best rule balances information flow and market efficiency. Too strict rules can cause prices to swing too much, hurting regular investors. Loose rules are better for everyone involved.

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