The Mandatory Disclosure of Trades and Market Liquidity

THE REVIEW OF FINANCIAL STUDIES, Vol. 8 No. 3, 1995

Posted: 23 Aug 1998

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.

JEL Classification: G18

Suggested Citation

Fishman, Michael Jay and Hagerty, Kathleen M., The Mandatory Disclosure of Trades and Market Liquidity. THE REVIEW OF FINANCIAL STUDIES, Vol. 8 No. 3, 1995, Available at SSRN: https://ssrn.com/abstract=6769

Michael Jay Fishman

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States
847-491-8332 (Phone)
847-491-5719 (Fax)

Kathleen M. Hagerty (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8345 (Phone)
847-491-5719 (Fax)

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