How Common is Insider Trading? Evidence from the Options Market

The U.S. Securities and Exchange Commission (SEC) brought 51, 30, and 33 insider trading cases in 2018, 2019, and 2020, respectively. Whether those numbers mean that insider trading is relatively uncommon or that the cases regulators and prosecutors have pursued are just the tip of the iceberg is difficult to determine and poses a challenge for studying insider trading.

We address this challenge in a new paper on how option investors responded to a significant increase in the likelihood and severity of prosecution after hedge-fund manager Raj Rajaratnam’s arrest in October 2009. His case marked the start of a major … Read more