Knowledge that Transforms

• We investigate illegal insider trading in China’s stock market. • Cross-provincial variation in legal quality affects insider-trading profitability and risk. • Stronger legal environments raise regulatory risk and enhance pricing efficiency. • Results show evidence consistent with deterrence in the form of fewer low-return trades. • Lower information efficiency enhances the positive impact of legal quality on insider-trading profitability. This study examines how provincial legal environments shape the profitability of illegal insider trading in China. Using 521 adjudicated insider-trading cases from 2006 to 2018, we hand-collect detailed information from court judgments and CSRC sanction documents to reconstruct holding-period returns and illicit gains. We combine these data with established provincial indices of legal development and firm-level measures of ex ante litigation risk to test whether legal risk is priced in illegal insider trades. We find that stronger provincial legal environments are associated with significantly higher per-trade profitability among illegal trades that insiders execute after accounting for enforcement risk. This pattern is consistent with a risk-compensation mechanism rather than a failure of enforcement, as stricter legal environments deter low-return trades and leave only trades with sufficiently high expected gains. Firm-level litigation exposure further strengthens this effect. The results remain robust to sample-selection corrections, alternative return measures and a range of heterogeneity tests. Overall, our findings show how institutional variation in enforcement shapes insider incentives and the risk–return trade-off of illegal trading.

This paper demonstrates practical arbitrage trading on the cryptocurrency market. It provides guidance on how to build a high-frequency trading system that benefits from exhibiting arbitrage opportunities. It reveals the algorithm of the trading bot that incorporates the order placement and execution strategy between decentral and central cryptocurrency exchanges. The arbitrage algorithm is implemented on two different blockchains that interact with Uniswap and Balancer folks. Current research explores arbitrage opportunities with back-testing models, the paper focuses on trades with realized arbitrage trades. Practical arbitrage includes all operational costs, liquidity constraints, direct effects on markets, and competition with peer arbitrage traders.

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We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance and to attain a certain ESG score (ESG mandate). Provided that a negative ESG premium is priced by the market, we show that an ESG mandate can reduce the mean–variance inefficiency of the portfolio frontier when the asset manager targets a limited over-performance return with respect to the benchmark. In equilibrium, with mean–variance investors and asset managers endowed with an ESG mandate, a negative ESG premium arises if the mandate is binding for asset managers. The negative ESG premium is due to the ESG constraint (institutional investors over-invest in virtuous ESG stocks). We find empirical evidence of such a negative premium in the US market.

We examine the impact of CEOs’ public charity affiliations on corporate labor violations and find that public-charity-affiliated CEOs have a lower likelihood of engaging in labor violations than their non-affiliated peers. In a disaggregated analysis, we find the result to be driven primarily by wage and hour violations. This finding is validated when we compare changes in wage and hour violations around different types of CEO turnover. We further identify the promotion of a positive corporate culture and an increase in labor-related expenditures as the main channels through which CEOs’ public charity affiliations affect wage and hour violations. In addition, we find that firms led by public-charity-affiliated CEOs experience lower employee turnover. The impact of public-charity-affiliated CEOs on reducing the likelihood of wage and hour violations is persistent and is more pronounced for CEOs who exhibit more altruistic behavior prior to assuming office. Overall, we provide persuasive evidence that CEOs’ public charity affiliations are beneficial to firms.

We investigate how stakeholder-centric corporate misconduct (CM) influences firms’ financial policies. CM is associated with higher cash holdings and lower dividend payouts and debt financing. These effects are more pronounced in firms with stronger governance. We further show that high cash holdings in CM firms are associated with higher firm value and lower implied cost of capital. Firms that replace their CEOs following CM adopt more conservative financial policies. Our evidence supports the precautionary motive for cash holdings, indicating that such reserves are unlikely to result from agency conflicts or increased managerial discretion in CM firms.