NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Insider Trading Raise Market Volatility?

Julan Du, Shang-Jin Wei

NBER Working Paper No. 9541
Issued in March 2003
NBER Program(s):   IFM   AP

This paper studies the role of insider trading in explaining cross-country differences in stock market volatility. It introduces a new measure of insider trading. The central finding is that countries with more prevalent insider trading have more volatile stock markets, even after one controls for liquidity/maturity of the market, and the volatility of the underlying fundamentals (volatility of real output and of monetary and fiscal policies). Moreover, the effect of insider trading is quantitatively significant when compared with the effect of economic fundamentals.

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Document Object Identifier (DOI): 10.3386/w9541

Published: Du, Julan and Shang-Jin Wei. "Does Insider Trading Raise Market Volatility?," Economic Journal, 2004, v114(498,Oct), 916-942. citation courtesy of

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