Does Insider Trading Raise Market Volatility?

Author/Editor:

Shang-Jin Wei ; Julan Du

Publication Date:

March 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper studies the role of insider trading in explaining cross-country differences in stock market volatility. The central finding is that countries with more prevalent insider trading 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 of monetary and fiscal policies). Moreover, the effect of insider trading is quantitively significant when compared with the effect of economic fundamentals.

Series:

Working Paper No. 03/51

Subject:

English

Publication Date:

March 1, 2003

ISBN/ISSN:

9781451847130/1018-5941

Stock No:

WPIEA0512003

Format:

Paper

Pages:

42

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