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The primary goal of this Article is to bring empirical evidence to bear on the heretofore largely theoretical law and economics debate about insider trading. The Article first summarizes various agency, market, and contractual (or "Coasian") theories of insider trading propounded over the course of this longstanding debate. The Article then proposes three testable hypotheses regarding the relationship between insider trading laws and several measures of stock market performance. Exploiting the natural variation of international data, the Article finds that more stringent insider trading laws are generally associated with more dispersed equity ownership, greater stock price accuracy and greater stock market liquidity, controlling for various economic, legal and institutional factors. These results cast doubt on pure "Coasian" theories of insider trading and suggest the appropriate locus of academic and policy inquiries about the efficiency implications of insider trading and its regulation. Further empirical research is necessary, however, in order conclusively to resolve the perennial insider trading debate.

A Comparative Empirical Investigation of Agency and Market Theories of Insider Trading