Research

Working papers

The papers study the measurement of trading costs, the enforcement of insider trading regulation, and corporate insiders’ choice of trading venue. A common thread is how information is reflected in market data and how that data is used by researchers, regulators, and market participants.

01Market Microstructure

Bias in Execution Cost Measures

With Björn Hagströmer · Draft available upon request

We show that conventional trade–quote matching rules lead to overestimated effective bid–ask spreads. Using London Stock Exchange data where the true benchmark is observed, we find that the Lee–Ready algorithm overstates the midpoint-based effective spread by about 8% and the depth-weighted effective spread by about 18%. The bias is primarily a midpoint problem, not a trade-direction problem: restricting to trades that Lee–Ready signs correctly still leaves the effective spread overstated by roughly 16%. The overestimation arises because relative trade latency is stochastic and feed-specific rather than a fixed lag. A full-information matching procedure that allows the matched quote to appear before or after the trade reduces the bias to near zero in both exchange and vendor data.

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02Market Microstructure

From Suspected to Prosecuted: Investigating Insider Trading

This paper examines the progression from suspicion to prosecution of illegal insider trading, using proprietary data of broker and exchange reports. Only 2% of suspects are prosecuted. Thus, public datasets limited to prosecutions capture only a narrow slice of enforcement. Reports are more likely when there are signs of information leakage, and when the information is more valuable, but less likely for illiquid stocks. Regulators and prosecutors focus on the suspect's ties to the firm, corroboration from multiple reports, and trading profits. Consistent with informed trading, suspected insider trading accounts for a significant share of pre-announcement abnormal returns and is associated with higher price impact and adverse selection.

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03Market Microstructure

Bright Light, Dark Room: Where Do Corporate Insiders Trade?

With Lars L. Nordén

In the fragmented equity market landscape, corporate insiders may conceal high-quality information or engage in illegal activities by trading on dark markets. While existing literature extensively covers the timing and methods of insider trading, little attention is given to the specific venues utilized by corporate insiders. We analyze where corporate insiders trade and evaluate the impact of their venue choice on abnormal returns. We find that when insiders are buying, they are more likely to trade on dark markets when engaging in illegal activities, but less inclined to do so when they are informed. Given insiders' endogenous venue selection, buying on dark markets negatively impacts abnormal returns. When insiders are selling, their venue choice is unrelated to whether they are informed or engage in illegal activities, and trading on dark markets does not significantly affect abnormal returns.

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Dissertation

Markets in the Dark: Insider Trading and Measurement Bias

Stockholm University · Defended 30 April 2026

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This thesis contains three papers on market microstructure. The papers document and correct bias in the effective bid–ask spread, model the enforcement chain for illegal insider trading, and examine how corporate insiders allocate trades between lit exchanges and dark markets.