Plausibly Exogenous [1641] - Insider Trading (07/31/2024)

LHS Variable
Market liquidity

RHS Variable
Insider trading

Source of Exogenous Variation
Five stockbrokers acquired information on these firms from Business Week's “Inside Wall Street” (IWS) column, which they received the day before its public release. Although not based directly on company news, trades based on prior knowledge of the IWS column yielded abnormal returns. Because the brokers traded only a third of the 116 stocks, this episode offers a natural experiment on the impact of informed trading in financial markets.

- Fishe and Robe (2004), “The impact of illegal insider trading in dealer and specialist markets: evidence from a natural experiment”