The World Price of Insider Trading


  • Utpal Bhattacharya,

  • Hazem Daouk

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    • Both authors are from the Kelley School of Business, Indiana University. This paper would not be possible without the information we received from the regulators and the representatives of the 103 stock markets that we contacted. We are deeply indebted to them. The first author is grateful to KAIST, South Korea, for allowing him the use of their Datastream data source when he was a visiting scholar there in the summer of 1999. Thanks are also due to seminar participants at Amsterdam, Arizona State, Bocconi, Cincinnati, Concordia, COPPEAD, Georgia State, Harvard Business School, HKUST, Indiana, McGill, Michigan State, NBER, Peking, Pittsburgh, NYSE, Queens, Shanghai Jiao Tong, Vanderbilt, University of Washington, Western Ontario, Yale, and York. Any remaining errors in this paper are our own.


The existence and the enforcement of insider trading laws in stock markets is a phenomenon of the 1990s. A study of the 103 countries that have stock markets reveals that insider trading laws exist in 87 of them, but enforcement—as evidenced by prosecutions—has taken place in only 38 of them. Before 1990, the respective numbers were 34 and 9. We find that the cost of equity in a country, after controlling for a number of other variables, does not change after the introduction of insider trading laws, but decreases significantly after the first prosecution.