Public Disclosure and Dissimulation of Insider Trades

Huddart, Steven; Hughes, John S.; Levine, Carolyn B.

doi:10.1111/1468-0262.00209

Cited by 246 publications

(115 citation statements)

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“…Huddart & Hughes & Levine extend the Kyle model from the aspect of the rule of market trading [10]. Cao & Ma bring the competition among insiders in their model [11].…”

Section: Extension Of Kyle Modelmentioning

confidence: 99%

Research on Modeling of Insider Trading and Equity Incentive

Xiang¹

2017

Proceedings of 3rd International Symposium on Social Science (ISSS 2017)

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Abstract. Due to the influence on the financial business field, insider trading has widely been paid attention on at home and abroad. This paper summarizes the development of the insider trading model domestic and overseas and the progress of the research of insider trading at home. Meanwhile, this paper puts forward a model, which is called benchmark model, which combines the real sector with financial markets to study insider trading. By using Bayesian Nash equilibrium solution, we can solve the benchmark model and then study the influence on insider trading caused by the financial markets. Therefore, the establishment of this model in this paper provides a strong basis for studying the relationship between the equity incentive contract and insider trading in the financial markets.

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“…Huddart & Hughes & Levine extend the Kyle model from the aspect of the rule of market trading [10]. Cao & Ma bring the competition among insiders in their model [11].…”

Section: Extension Of Kyle Modelmentioning

confidence: 99%

Research on Modeling of Insider Trading and Equity Incentive

Xiang¹

2017

Proceedings of 3rd International Symposium on Social Science (ISSS 2017)

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“…Early academic literature highlighted this trade-off especially in the context of insider trading (Leland, 1992;DeMarzo, Fishman, and Hagerty, 1998;Huddart, Hughes, and Levine, 2001). More recently, it has been discussed in connection with hedge fund opacity (Agarwal, Jiang, Tang, and Yang, 2013;Easley, O'Hara, and Yang, 2014) and mutual funds' portfolio disclosure (Agarwal, Mullally, Tang, and Yang, 2015).…”

Section: Introductionmentioning

confidence: 99%

Flying Under the Radar: The Effects of Short-Sale Disclosure Rules on Investor Behavior and Stock Prices

2016

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Reproduction permitted only if source is stated.ISBN 978-3-95729-275-9 (Printversion) Non-technical summary Research Question "Going short", the selling of a security that is not currently owned, and subsequently repurchasing it, is a common practice in financial markets. Controversial in society at large, short sellers play a major role in financial theory. Moreover, there is ample evidence that short selling, in general, contributes to market efficiency, enhances liquidity, and facilitates risk management. However, there has been intense debate, among academia, regulators, and the general public, that the practices of short sellers remain largely in the dark. Unlike long positions, which in most countries are governed by various disclosure rules, short positions have not been subject to such disclosure requirements hitherto. Proponents of short-selling disclosure rules argue that greater transparency increases the efficiency and fairness of financial markets. However, public disclosures may pose a threat to proprietary investment strategies and may harm the interests of short sellers. As a consequence, a disclosure rule could affect the trading behavior of investors and the efficiency of security prices. These questions lie at the heart of the debate on introducing a disclosure obligation for short sellers and have yet to be answered. ContributionIn this paper, we analyze how transparency requirements for short sales affect investors' behavior and security prices. We utilize the novel transparency regulation for short sales introduced in the European Union and observe both public short positions above, and confidential positions below, the disclosure threshold in Germany. Our main research questions are as follows. First, we investigate whether investors are reluctant to increase their short positions beyond the public disclosure threshold. Second, we analyze whether such reluctance represents a short-selling constraint on the investors and therefore affects the efficiency of stock prices. ResultsWe document that a sizable fraction of investors are reluctant to disclose their short positions publicly. Just below the disclosure threshold, positions accumulate, exhibit an abnormally low probability of increasing, and remain unchanged for an abnormally long time. This reluctance to cross the publication threshold represents a short-sale constraint for a large fraction of investors. Consistent with the overpricing hypothesis, when the short-sale constraint imposed by the disclosure threshold is potentially binding, stocks exhibit negative abnormal returns of 1.0-1.4% on a monthly basis. Different placebo tests verify that the short-sale constraint originates from the disclosure rule. Overall, these findings suggest that the investors' reluctant behavior in response to the short-sale transparency regulation imposes negative externalities on stock market efficiency. This paper analyzes how newly introduced transparency requirements for short positions affect investors' behavior and security prices. Employing a uniq...

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“…This is also true for statements that certify the undertaken trade, which the SEC and various European regimes, among others, require to be made public soon after the trade has been made. On this latter issue, three in ‡uential studies by Fishman and Hagerty (1995), Narayanan (1997), andHuddart et al (2001), hereafter FH, JN, and HHL respectively, advance our understanding by focusing on big traders; but small-sized investors must also disclose trades publicly. …”

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confidence: 99%

Public Disclosure by Small Traders

Gelsomini

2012

SSRN Journal

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We model strategic trading by a rent-seeking insider, who exchanges without being spotted, and propose a comprehensive theory of market non-anonymity. Several novel results are established. They depend on asset value proprieties, beliefs, inter-temporal choices, and investors' characteristics. In equilibrium, under a regulation mandating public trade revelation, disclosures may shift prices. If they do, uninformed manipulations arise only in some instances. Speci…cally, insiders constrained on asset holdings earn more than they would without such a disclosure rule. Consequently, mandating disclosures is unnecessary, as informative trades will be revealed voluntarily. This result reveals a previously unexplored link to the literature on (uncerti…ed/non-factual) announcements.Keywords: Mandatory vs. voluntary public disclosure, securities regulation, insider trading, market manipulation. JEL Classi…cation: D82,G12,G14,G38 I am grateful to Andres Carvajal, Jonathan Cave, Giovanni Cespa, Kose John, Herakles Polemarchakis, and Branko Urošević for their fruitful discussions. Comments from Franklin Allen, Pablo Beker, Ekkehart Boehmer, Andrea Bu¤a, Gilles Chemla, Joao Cocco, Pasquale Della Corte, James Dow, Peter Hammond, Cars Hommes, Gur Huberman, Charles Jones, Boyan Jovanovic, Pete Kyle, Paulo Parente, Mieszko Mazur, Raghu Rau, Stefano Sacchetto, Mark Salmon, Pedro Santa-Clara, Lucio Sarno, Elvira Sojli, Dezsö Szalay, Pedro Teles, Giorgio Valente, and Dimitri Vayanos, as well as seminar participants at the Public disclosure of inside statements always receives great attention in capital markets. Paradoxically, following the seminal work of Benabou and Laroque (1992), hereafter BL, on market manipulation and credibility, where insiders may produce false announcements and trade on the mispricing, there have been few attempts to develop conceptual models that study these strategic disclosures. Nowadays, the extent to which an inside statement conveys information is, more than ever, the object of a considerable debate. This is also true for statements that certify the undertaken trade, which the SEC and various European regimes, among others, require to be made public soon after the trade has been made. On this latter issue, three in ‡uential studies by Fishman and Hagerty (1995), Narayanan (1997), andHuddart et al. (2001), hereafter FH, JN, and HHL respectively, advance our understanding by focusing on big traders; but small-sized investors must also disclose trades publicly. 1This paper considers small traders-i.e., traders whose transactions cannot be spottedwho are subject to a so called capital constraint or risk limit, 2 and proposes a comprehensive theory of market non-anonymity. We examine public disclosure to interpret the e¤ects of mandatory and voluntary reports about undertaken trades, and establish several novel results, including: (1) Disclosures do not always a¤ect prices; (2) when they do, only in speci…c instances the investor, when uninformed, manipulates the market; and (3) for disclosure to b...

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Public Disclosure and Dissimulation of Insider Trades

Cited by 246 publications

References 15 publications

Research on Modeling of Insider Trading and Equity Incentive

Research on Modeling of Insider Trading and Equity Incentive

Flying Under the Radar: The Effects of Short-Sale Disclosure Rules on Investor Behavior and Stock Prices

Public Disclosure by Small Traders

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