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Insider Trading and Disclosure

This study is the first to propose a comprehensive theory of the public disclosure of trades by an insider whose orders have no direct price impact. A reputational model shows that not all insiders manipulate prices with uninformed disclosures. More importantly, it shows that an insider earns at least as much with a disclosure rule as without one, implying that mandatory disclosure is unnecessary because trades are revealed voluntarily. A generalization of the theory analyzes first the disclosure of ex-ante unverifiable inside statements without requiring the insider trader to disclose ‘honestly’; to date this has been a limiting assumption in the literature. Numerous policy implications are drawn.