Journal Article Derivatives: A PowerPlus Picture Book Get access Derivatives: A PowerPlus Picture Book. Mark Rubinstein. Kathleen Hagerty Kathleen Hagerty Northwestern University Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 13, Issue 1, January 2000, Pages 253–256, https://doi.org/10.1093/rfs/13.1.253 Published: 15 June 2015

[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.]

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.