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On the Ethics of “Non-Corporate” Insider Trading

Authors
  • Blau, Benjamin M.1
  • Griffith, Todd G.1
  • Whitby, Ryan J.1
  • 1 Utah State University,
Type
Published Article
Journal
Journal of Business Ethics
Publisher
Springer-Verlag
Publication Date
Feb 17, 2021
Pages
1–15
Identifiers
DOI: 10.1007/s10551-021-04739-x
PMID: 33612896
PMCID: PMC7886607
Source
PubMed Central
Keywords
License
Unknown

Abstract

The ethical considerations of insider trading have been widely debated in the academic literature (see e.g., Moore in J Bus Ethics 9(3):171–182, 1990 ). In 2013, the STOCK Act, which was initially passed to mitigate insider trading by government officials, was quickly and unexpectedly amended to allow certain government employees to withhold their financial information. To identify and quantify the potential costs placed on investors by non-corporate insider traders, we use the unusual circumstances surrounding this amendment. For a sample of stocks most held by members of Congress, we find that, relative to control stocks, liquidity significantly worsens and volatility increases during the post-amendment period. Our results highlight the costs that are incurred by investors in the presence of non-corporate insider trading. These findings call for a stronger development of an ethical framework that justifies the restriction of all types of insider trading.

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