Regulating Insider Trading When Investment Matters
We provide a general framework for analyzing the effects of insider trading on real investment and welfare as well as the consequences of different regulatory policies in a model where all traders are rational expected-utility maximizers and aware of their position in the market. We find that: with costly information acquisition, an "abstain-or-disclose" rule tends to be optimal; with free information acquisition, laissez-faire is better. This suggests enforcing an abstain-or-disclose rule with a high standard of proof for inside information. Our approach also uncovers the pitfalls of welfare analysis in the noise-trader model.
Year of publication: |
2004
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Authors: | Medrano, Luis Angel ; Vives, Xavier |
Published in: |
Review of Finance. - Springer. - Vol. 8.2004, 2, p. 199-277
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Publisher: |
Springer |
Saved in:
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