INSIDER TRADING, REGULATION, AND THE COMPONENTS OF THE BID–ASK SPREAD

Bart Frijns · Aaron B. Gilbert · Alireza Tourani‐Rad

44 citations0/0 files storedThe Journal of Financial Research

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Financial Markets and Investment Strategies Corporate Finance and Governance Securities Regulation and Market Practices

Abstract

Abstract In this article we investigate the relation between insider trading regulations and the bid–ask spread. We decompose the spread into its components before and after the enactment of strict new insider trading rules in New Zealand. We find that the enactment led to a significant decrease in the information asymmetry component of the spread, which is observed mainly in illiquid and high prechange information asymmetry companies. These findings are robust to model specification. In addition, we find a decrease in the contribution of information asymmetry to price volatility.

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References

1985Continuous Auctions and Insider Trading 2000Investor protection and corporate governance 1985Bid, ask and transaction prices in a specialist market with heterogeneously informed traders 1991Inferring Trade Direction from Intraday Data 1984A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market 1968The Cost of Transacting 1983Information Effects on the Bid-Ask Spread 1988Estimating the components of the bid/ask spread

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2014Continuous disclosure compliance: does corporate governance matter?2010Public regulatory reform and management earnings forecasts in a low private litigation environment 2013Do Criminal Sanctions Deter Insider Trading?

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