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Insider trading: regulation, securities markets, and welfare under risk aversion

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URI: https://hdl.handle.net/10016/3901
ISSN: 2340-5031
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we950905.pdf (1.23 MB)
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1995-02
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I analyze in this paper the impact of insider trading regulation (ITR) on a securities market and on social welfare. I argue below that the imposition of ITR forces a reallocation of wealth and risk that decreases social welfare. Three reasons explain this resulto First, ITR increases the volatility of securities prices, thus making the market more risky; second, it worsens the risk sharing among investors; and, third, it diverts resources from the productive sector of the economy. Further, although I formally establish conditions under which ITR makes society better off, largue that those conditions cannot be used to justify the imposition of this regulation.
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Insider trading, Securities Regulation
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DE - Working Papers. Economics. WE
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