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How much does an Illegal Insider Trade?


  • The authors would like to thank Tom McInish, Giovanni Petrella, Bonnie F. Van Ness and seminar participants at the Securities and Exchange Commission, European Financial Management Association Meeting 2009, Financial Management Association International (FMA) Meeting 2010 and the Capital Markets Cooperative Research Centre for their insightful comments.

Hui Zheng

Discipline of Finance (R402)

Business School (H69)

The University of Sydney

Glebe NSW 2006



This paper examines the choice of trade size by an illegal insider. Previous literature (i.e. Meulbroek 1992) tends to focus on the price impact of such a trader. Using a unique data set hand-collected from the litigation reports of the Securities and Exchange Commission and court cases, we provide evidence, which suggests that the size of an illegal insider's trade is a function of the value of his private information, the probability of detection and the expected penalty if detected. Our results have important implication for security market regulators.