Insider Trading Enforcement and the Private Information Environment: Evidence from the Newman Ruling
Date of Graduation
Doctor of Philosophy in Business Administration (PhD)
Second Committee Member
Hedge Funds, Insider Trading, Newman, Private Information, Regulation
I exploit a shock to U.S. insider trading law to investigate whether a reduction in the enforceability of tipper-tippee insider trading restrictions leads to changes in information parity among investors and the efficiency of price discovery. The December 2014 Federal Second Circuit Court of Appeals ruling in US v. Newman constrained enforcement by restricting the types of exchanges between managers and investors that trigger tipper-tippee insider trading liability. Following Newman, I find that Second Circuit hedge funds experienced a significant increase in their stock picking ability of Second Circuit stocks in terms of preempting future earnings announcement returns and future earnings surprises; this is consistent with Newman having a differential effect on market participants as the ruling represented binding precedent only within the jurisdictional boundaries of the Second Circuit. I also find evidence that the suspect trading activity of Second Circuit hedge funds led to improved market efficiency in the Second Circuit, as evidenced by tests that approximate the speed of price discovery between quarterly earnings announcement cycles of portfolio firms. This study extends prior work by documenting the relation between important aspects of capital market activity and tipper-tippee insider trading law.
Pierce, A. T. (2020). Insider Trading Enforcement and the Private Information Environment: Evidence from the Newman Ruling. Graduate Theses and Dissertations Retrieved from https://scholarworks.uark.edu/etd/3827
Accounting Commons, Business Law, Public Responsibility, and Ethics Commons, Finance and Financial Management Commons, Portfolio and Security Analysis Commons