Trading on inside information when there may be tippees |
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| Authors: | Chi-Wen Jevons Lee Zemin Lu |
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| Affiliation: | (1) A. B. Freeman School of Business, Tulane University, New Orleans, LA 70118, USA;(2) Graduate Institute of Business, Zhejiang University, Hangzhou, Zhejiang Province, China;(3) School of Business, Faculty of Business and Economics, The University of Hong Kong, Hong Kong, Hong Kong |
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| Abstract: | ![]()
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. |
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| Keywords: | Disclosure Efficiency Insider trading Regulation |
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