Supplementary Material > Volume 114 Issue 498 (October 2004)

Volume 114 Issue 498 (October 2004)

Does Insider Trading Raise Market Volatility?

Julan Du, Shang‐Jin Wei

 Description of Variables
(1) Country
Country name

(2) Stock Market Volatility
Defined as the standard deviation of monthly returns over December 1984 to December 1998, multiplied by 100.
The monthly return in U.S. dollars is defined as the change in the log of the stock market index (in dollar terms).
Source: Morgan Stanley Capital International Dataset and Emerging Markets Database.

(3) Volatility of Real GDP Growth Rate
Computed as the standard deviation of the annual real GDP growth rate over 1985-1998, multiplied by 100.
Real GDP growth rate is the first difference in the log of GDP in 1995 constant U.S. dollars.
Source: World Bank's World Development Indicators.

(4) Cash Flow Risk
Measures the variability of operating income.
Defined as the standard deviation of the change in operating income relative to mean operating income in absolute value over the period of 1991-96.
Source: Claessens, Djankov and Nenova (1999).

(5) Leverage Ratio
Defined as the ratio of total debt to the sum of total debt and the market value of the equity.
Source: Claessens, Djankov, and Nenova (1999).

(6) Billionaire Wealth/GDP
Defined as the ratio of the wealth of the billionaires (acquired through entrepreneurship or inheritance) relative to GDP, in 1993.
Source: Forbes magazine, cited by Morck, Stangeland, and Yeung (1998).

(7) Gini Coefficient
Measures the degree of inequality in income distribution. Average of the data from Barro-Lee dataset and those from World Development
Report (1998/99) issue.

(8) Volatility of Exchange Rate
Defined as the standard deviation of the change in monthly log nominal exchange rate with respect to US$, multiplied by 100.
The period is over 1985-98.
Source: The nominal exchange rate is the monthly average exchange rate from the IMF’s International Financial Statistics.

(9) Volatility of Inflation
Defined as the standard deviation of the monthly inflation rate over January 1985 to December 1998.
Inflation data is defined as the change in the log consumer price index, which is from the IMF’s IFS data base (line 64).

(10) Volatility of Fiscal Deficit/GDP
Computed as the standard deviation of the annual ratio of the government budget deficit to GDP over 1985 to 1998.
The data on the overall budget deficit/GDP are obtained from the World Bank's World Development Indicators CD Rom.

(11) Trade Openness: (Exports+Imports)/GDP
The average value of (imports + exports)/GDP over the period of 1985-98.
Source: World Bank's World Development Indicators CD Rom.

(12) Ratio of Stock Market Capitalization/GDP
Measures the developedness of stock market. Data are for the year of 1988.
Source: World Bank's World Development Indicators CD Rom.

(13) Stock Turnover/Market Capitalization
Measures the turnover ratio of stock markets.
Source: World Bank's World Development Indicators CD Rom.

(14) Stock Exchange Age
The age of the main stock exchange in each country is calculated as 1998 minus the founding year of the exchange.
The data on the founding year of the exchange are obtained from Bhattacharya and Daouk (2002).

(15) Log of Number of Listed Companies
Computed as the average number of listed companies during 1990-1996
Source: the World Bank's World Development Report 2000 (Table 3).

(16) Log of GDP per Capita
GDP per capita is measured in 1995 constant U.S. dollars, averaged over 1985-1998.
Source: World Bank's World Development Indicators CD Rom.

(17) Fraction of Time in Which Insider Trading Law is in Place
Calculated as the fraction of the sample time that an insider trading law already exists for each country.
Data on the year when an insider trading law is introduced are obtained from Bhattacharya and Daouk (2002).

(18) Fraction of Time Since the First Prosecution of Insider Trading
Calculated as the fraction of the sample time after the first insider trading prosecution is launched in each country.
The data on the year of the first prosecution are extracted from Bhattacharya and Daouk (2002).

(19) Insider Trading Index
The insider trading index is created from the question: “insider trading is not common in domestic stock markets”, 1=strongly disagree, 7=strongly agree.
It is rescaled by the following formula: new value = 8-original value. We use the average of the values in 1997 and 1998.
As a result, a higher number implies more insider trading or legal corruption.
We re-scale the insider-trading index further by dividing it by its standard deviation in the sample.
Source: Global Competitiveness Report (1998 and 1999).

(20) Legal Corruption Index
The legal corruption index is created from the question: “Irregular payments to judges or other officials involved in the enforcement and execution of judgments are not common and do not influence the outcome of court proceedings”, 1=strongly disagree, 7=strongly agree.
It is re-scaled by the following formula: new value = 8-original value. We use the value of 1997.
As a result, a higher number implies more legal corruption.
Source: Global Competitiveness Report (1998).

Insider_Trading_Data.zip