Research Details

Abstract

Financial market regulations require various "insiders" to disclose their trades after the trades are made. We show that such mandatory disclosure rules can increase insiders' expected trading profits. This is because disclosure leads to profitable trading opportunities for insiders even if they possess no private information on the asset's value. We also show that insiders will generally not voluntarily disclose their trades, so for disclosure to be forthcoming, it must be mandatory. Key to the analysis is that the market cannot observe whether an insider is trading on private information regarding asset value or is trading for personal portfolio reasons.

Type

Article

Author(s)

Michael J. Fishman, Kathleen Hagerty

Date Published

1995

Citations

Fishman, Michael J., and Kathleen Hagerty. 1995. The Mandatory Disclosure of Trades and Market Liquidity. Review of Financial Studies.(3): 637-676.