Insider trading has two definitions: securities trading by a corporate insider, and securities trading while in the possession of material non-public information about the security. This article reviews the two main strands of economic literature on insider trading. First, scholars on the intersection of law and economics analyse the social-welfare implications of insider-trading regulation. Second, financial economists use empirical evidence on insider trading to analyse the efficiency of stock markets.
KeywordsAdverse selection Capital asset pricing model Cost of capital Efficient markets hypothesis Informational efficiency Insider trading Law, economic analysis of Market liquidity Non-public information Regulation costs Risk-adjusted returns Securities and Exchange Act 1934 (USA) Securities and Exchange Commission (USA) Securities regulation Short selling Stock markets Tipping chains
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