Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster information efficiency. We study traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market causes both informed and uninformed traders to be more active in the unregulated market. This market, thus, sees more trading volume, lower spreads, and less mispricing. Nevertheless, uninformed traders suffer greater losses in unregulated markets, while informed traders profit from the absence of regulation.

The following is the supplementary material related to the article 'insider trading regulation and trader migration' published in the Journal of Financial Markets.