Working Paper: NBER ID: w9541
Authors: Julan Du; Shangjin Wei
Abstract: 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.
Keywords: insider trading; market volatility; cross-country differences
JEL Codes: I20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| insider trading (G14) | market volatility (G17) |
| insider trading (G14) | stock market volatility (G17) |
| confounding factors (D91) | market volatility (G17) |
| economic fundamentals (E25) | market volatility (G17) |
| insider trading (G14) | economic fundamentals (E25) |