Informed Trading in Regulated Industries

We investigate informed trading in firms in regulated industries. We categorize firms in financial services, pharmaceuticals, and utilities as regulated or supervised. Our empirical research strategy employs several different approaches to examine informed trading in supervised firms, including panel regressions, information shocks, natural experiments, private information flows, disparities in state and federal supervision, and cross-state differences in regulatory oversight. The results of these tests, across various security markets and measures of informed trading, appear inconsistent with the hypothesis that regulatory supervision reduces informed trading. Instead, this series of tests all point in one direction, namely that informed trading occurs more readily in firms with regulatory oversight.