• Insider trading;
  • Law enforcement;
  • American Depositary Receipts;
  • Market liquidity;
  • Price efficiency;
  • Legal protection
  • G10;
  • G38


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.