Does Insider Trading Raise Market Volatility?

Julan Du and Shang-Jin Wei
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Julan Du: Chinese University of Hong Kong

No 72002, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper studies the role of insider trading in explaining cross-country difference in stock market volatility. It introduces a new (albeit imperfect) measure of insider trading for 50 or so countries. The central finding is that countries with more prevalent insider trading do have more volatile stock markets, even after one controls for liquidity/maturity of the market, and the volatility of the underlying fundamentals (volatility of real output, and monetary and fiscal policies). Moreover, the effect of insider trading is quantitatively significant when compared with the effect of economic fundamentals.

Pages: 32 pages
Date: 2002-03
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Related works:
Journal Article: Does Insider Trading Raise Market Volatility? (2004)
Working Paper: Does Insider Trading Raise Market Volatility? (2003)
Working Paper: Does Insider Trading Raise Market Volatility? (2003)
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