Abstract
We investigate the impact of compulsory insider-trading disclosure and its combination with a mandatory holding rule on price predictability and asset mispricing. We modify the dynamic price-adjustment model to account for insiders’ private information. Our results show that insiders produce weakly-characterized price signals that induce a less than proportional price adjustment to the changes in the dividend value, in both markets with disclosure rule and holding requirement, in comparison with unregulated markets. A shift in insiders’ strategies from information-motivated to liquidity-motivated trading appears to fuel the impairment of price predictability in regulated markets. The exacerbation of asset mispricing in markets with holding restriction is characterized by a growth in the speculative transactions and loss-making trading proposals.
| Original language | English |
|---|---|
| Article number | 103745 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 110 |
| DOIs | |
| Publication status | Published - Jan 2020 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2019
ASJC Scopus Subject Areas
- Economics and Econometrics
- Control and Optimization
- Applied Mathematics
Keywords
- Asset market
- Asymmetric information
- Disclosure
- Holding requirement
- Insider
- Laboratory experiment