When chasing the offender hurts the victim: The case of insider legislation

摘要

Backers and opponents argue over the pros and cons of legislation forbidding trading by informed insiders. Yet a lack of reliable empirical data about the effects of such legislation inhibits a conclusive scientific evaluation. We overcome this problem by resorting to laboratory markets and find that insider legislation has significant negative effects on multiple market dimensions: under insider legislation, (1) markets are less liquid, (2) markets are less informationally efficient, and (3) uninformed traders' earnings (before redistribution of illicit insider gains) are lower. (C) 2016 The Authors. Published by Elsevier B.V.