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Optimal Contracting and Insider Trading Restrictions
Author(s) -
FISCHER PAUL E.
Publication year - 1992
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1992.tb04405.x
Subject(s) - insider trading , insider , moral hazard , pareto optimal , business , value (mathematics) , alternative trading system , revelation , law and economics , pareto principle , microeconomics , economics , actuarial science , finance , algorithmic trading , law , incentive , computer science , operations management , political science , art , literature , machine learning , multi objective optimization
Restrictions on trading by insider agents are analyzed using an optimal contracting framework. Prohibition of insider trading is shown to be Pareto preferred if, and only if, a revelation or moral hazard problem exists. If prohibition of insider trading is valuable, then trade registration with a delay is shown to be as valuable as complete prohibition. Short selling restrictions, however, are generally of less value than complete prohibition. Finally, regulation of insider agent trading by governmental institutions and/or professional associations is discussed.