China stopped insider trading. Stock prices got less accurate.

China made it harder for insiders to hide their stock trades through a program called Stock Connect. This made stock prices less accurate, because the hidden trades were actually helping to reveal real information.

Regulators want to stop illegal insider trading. This paper shows that sometimes, those illegal trades make stock prices more accurate. When China cracked down on hidden trading, it removed a source of real information from the market. This means regulators face a trade-off.