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Rev Fin 1995; 8:637-676
© 1995 the Society for Financial Studies

Article

The mandatory disclosure of trades and market liquidity

MJ Fishman and KM Hagerty
Northwestern University, Kellogg Graduate School of Management, 2001 Sheridan Road, Evanston, IL 60208, USA

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 of is trading for personal portfolio reasons.


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 REV FINANC STUDHome page
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[Abstract] [Full Text] [PDF]


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