The Economics of Securities Regulation: A Survey

This paper reviews the academic literature that analyzes securities regulation from an economic perspective. It begins by describing the institutional foundations of securities law in the U.S. and distinguishing securities regulation from the private law of contracts, property, and fraud. Section 2 discusses the theoretical literature on mandatory versus voluntary disclosure in securities markets, focusing on information asymmetry and agency problems as justifications for mandatory disclosure. Section 3 surveys empirical work on the efficacy of actual mandatory disclosure rules. The remaining sections describe particular aspects of the U.S. regulatory system, including the regulation of public offerings, publicly-traded companies, trading markets, securities fraud, insider trading, market manipulation, and mutual funds and other collective investment vehicles, and surveys important theoretical and empirical work on each. The paper is intended to offer both institutional background and a summary of key research findings that may provide useful starting points for future research.