American Finance Association (AFA) Annual Meeting
59 PagesPosted: 9 Feb 2021Last revised: 9 Sep 2023
See all articles by Vinay Patel
Vinay Patel
University of Technology Sydney (UTS)
Tālis J. Putniņš
University of Technology Sydney (UTS); Digital Finance CRC; Stockholm School of Economics, Riga
Date Written: January 11, 2020
Abstract
We estimate that the prevalence of illegal insider trading is at least four times greater than the number of prosecutions. Using structural estimation methods that account for incomplete non-random detection and all US prosecuted insider trading cases, we estimate that insider trading occurs in 1-in-5 mergers and acquisitions and in 1-in-20 earnings announcements. We find that insider trading is more likely when the information is more valuable, more people are in possession of the information, and in more liquid stocks. Detection and prosecution are more likely when there are abnormal trading patterns and more regulatory resourcing.
Keywords: insider trading, prosecution, detection controlled estimation, M&A, earnings
JEL Classification: G14
Suggested Citation:Suggested Citation
Patel, Vinay and Putnins, Talis J., How Much Insider Trading Happens in Stock Markets? (January 11, 2020). American Finance Association (AFA) Annual Meeting, Available at SSRN: https://ssrn.com/abstract=3764192 or http://dx.doi.org/10.2139/ssrn.3764192
Vinay Patel (Contact Author)
University of Technology Sydney (UTS) ( email )
15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia
Talis J. Putnins
University of Technology Sydney (UTS) ( email )
PO Box 123
Broadway
Sydney
Australia
+61 2 9514 3088 (Phone)
Digital Finance CRC ( email )
Stockholm School of Economics, Riga ( email )
Strelnieku iela 4a
Riga, LV 1010
Latvia
+371 67015841 (Phone)