Abstract
The purchase or sale of corporate stock by employees or other closely associated individuals, when done on the basis of information that is not publicly available, is called insider trading. Insider trading is illegal in the United States, and the Securities and Exchange Commission (SEC) vigorously enforces the laws with both civil and criminal penalties. By contrast, insider trading is legal in most European countries. A few other European countries have mild rules constraining insider trading, but those rules have not been enforced actively.
We have received helpful comments on earlier versions of this paper from Michael Dooley, Jens Fejo, Barbara Klose-Ullman, Roberta Romano, Cliff Smith and Peter Zweifel. We have also benefited from other comments received in presentations at the Law and Economics Conference of the Wissenschaftszentrum Berlin, at the Liberty Fund Conference on Insider Trading, and at the University of Munich. A more detailed version of the theoretical arguments presented here and its empirical underpinnings may be found in our forthcoming papers in the Journal of Law and Economics and the Northwestern University Law Review.
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Haddock, D.D., Macey, J.R. (1986). Controlling Insider Trading in Europe and America: The Economics of the Politics. In: von der Schulenburg, JM.G., Skogh, G. (eds) Law and Economics and the Economics of Legal Regulation. International Studies in Economics and Econometrics, vol 13. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-4442-8_8
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