Insider Trading Restrictions and Informed Trading in Peer Stocks

68 Pages Posted: 23 Sep 2022 Last revised: 23 Jun 2023

See all articles by Prachi Deuskar

Prachi Deuskar

Indian School of Business

Aditi Khatri

University of Arizona - Eller College of Management

Jayanthi Sunder

University of Arizona - Eller College of Management

Date Written: June 20, 2023

Abstract

Using a uniquely constructed dataset of trades by corporate insiders in all stocks, we find that, after insider trading regulations become stricter, insiders are 20% more likely to trade in peer stocks and that such trades become more profitable. The increase in both the probability and profitability of peer-stock trades is driven by the insider’s information that is fungible to industry peers. Stricter insider trading laws are designed to improve liquidity and price informativeness in capital markets. We show that peer trading dampens these intended benefits of the insider trading regulation.

Keywords: Insider trading regulation, Informed trading, Information fungibility, Price informativeness, Liquidity

JEL Classification: D4, D82, G14, K22

Suggested Citation

Deuskar, Prachi and Khatri, Aditi and Sunder, Jayanthi, Insider Trading Restrictions and Informed Trading in Peer Stocks (June 20, 2023). Available at SSRN: https://ssrn.com/abstract=4210203 or http://dx.doi.org/10.2139/ssrn.4210203

Prachi Deuskar (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

Aditi Khatri

University of Arizona - Eller College of Management ( email )

1130 E. Helen St., McClelland Hall
Tucson, AZ 85721
United States

Jayanthi Sunder

University of Arizona - Eller College of Management ( email )

School of Accountancy
1130 E Helen St.
Tucson, AZ 85721
United States
520-626-8489 (Phone)

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