TY - JOUR
T1 - A game theory model of regulatory response to insider trading
AU - Smales, L. A.
AU - Thul, Matthius
PY - 2017/4/16
Y1 - 2017/4/16
N2 - We develop a model which can help in explaining the evolving regulatory regime around insider trading. We form a simple sequential game-theoretical model of insider trading transactions and, utilizing Monte Carlo simulation to determine equilibrium, we show that costly investigations and low penalties incentivize traders to engage in illegal transactions. While the model helps to explain stiffer action by regulatory bodies, the question remains as to whether the elevated penalty levels are sufficient to prevent further insider trading.
AB - We develop a model which can help in explaining the evolving regulatory regime around insider trading. We form a simple sequential game-theoretical model of insider trading transactions and, utilizing Monte Carlo simulation to determine equilibrium, we show that costly investigations and low penalties incentivize traders to engage in illegal transactions. While the model helps to explain stiffer action by regulatory bodies, the question remains as to whether the elevated penalty levels are sufficient to prevent further insider trading.
KW - financial market regulation
KW - game theory model
KW - Insider trading
KW - Securities and Exchange Commission (SEC)
UR - http://www.scopus.com/inward/record.url?scp=84976533822&partnerID=8YFLogxK
U2 - 10.1080/13504851.2016.1200179
DO - 10.1080/13504851.2016.1200179
M3 - Article
AN - SCOPUS:84976533822
SN - 1350-4851
VL - 24
SP - 448
EP - 455
JO - Applied Economics Letters
JF - Applied Economics Letters
IS - 7
ER -