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Insider Trading Regulation and Market Quality: Evidence from American Depositary Receipts
Author(s) -
Chung Kee H.,
Zhang Hao
Publication year - 2010
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/j.2041-6156.2010.01013.x
Subject(s) - insider trading , enforcement , business , alternative trading system , market liquidity , information asymmetry , market microstructure , dark liquidity , algorithmic trading , stock market , insider , monetary economics , financial system , economics , finance , order (exchange) , law , paleontology , horse , political science , biology
We investigate the relation between insider trading law enforcement and stock market quality using a sample of American Depositary Receipts (ADR) over the period from 1998 to 2006. We show that ADR from countries that have enforced insider trading laws have better market liquidity and lower information asymmetry than ADR from countries that have not enforced insider trading laws. In addition, ADR from countries with insider trading law enforcement have greater price efficiency. Our results are robust to different estimation methods and alternative model specifications. We interpret these results as evidence that the enforcement of insider trading laws can effectively deter insider trading and enhance both market liquidity and price efficiency.