A Comparative Analysis of Insider Trading in the United States, Turkey, and Kuwait

Writer: Daniel Martinez-Arevalo

Article Editor: Evelyn Shvartsman

I. Introduction

Insider trading has been a controversial topic for decades. Economists and legal scholars continue to debate its ethics, profitability, and market impact. Insider trading is defined as the act of “trading and related communications by those who possess material, nonpublic information.”¹ However, there is a difference between legal and illegal insider trading. Legal insider trading occurs when an individual buys or sells shares of their own company and reports it to the Securities and Exchange Commission (SEC) in a timely manner.² On the other hand, insider trading becomes illegal when someone “[buys] or [sells] a security, in breach of a fiduciary duty or other relationship of trust and confidence, based on material, nonpublic information about the security.”³ Differentiating legal and illegal insider trading is crucial for understanding how it affects investor confidence and market fairness. This article compares insider trading profitability in the United States, Turkey, and Kuwait to analyze the different outcomes under distinct regulatory systems. Although some experts believe insider trading is not lucrative and damaging to the market, insider trading in the United States is slightly more profitable compared to Turkey and Kuwait because of the differences in power dynamics at multinational corporations and the returns in the short-term. This difference in power dynamics exists because executives at U.S. multinational corporations have greater information control and weaker oversight. Insider trading is also detrimental to the market because of the artificial volatility that it induces.

II. Legal Framework of Insider Trading

The United States addresses insider trading through numerous laws. The United States Code prohibits short sales for nongovernment securities that would violate additional laws set forth by the Securities and Exchange Commission (SEC).⁴ The SEC deems it unlawful for any individual to engage in the national securities exchange and make falsified or misleading statements regarding their activity.⁵ Furthermore, the U.S. Supreme Court clarified in Dirks v. SEC (2983) that an individual is liable for insider trading when they breach fiduciary duty by releasing confidential information for personal benefit.⁶ The rulings of Supreme Court justices emphasize the importance to preserve the integrity of the market and confidence of investors.⁷

Additionally, Donald Langevoort, former staff member at the SEC and current legal scholar, explains, “The fiduciary principle is often described in terms of an actual expectation of fair dealing arising from a relationship of trust and confidence.”⁸ He argues the fiduciary principle is what drives insider trading law; it distinguishes legal advantageous information from unlawful breaches of trust.⁹ Turkey’s Capital Markets Board and Kuwait’s Capital Markets Authority take a similar approach. For example, Turkey’s Capital Markets Board emphasizes disclosure and transparency with its mission to “maintain safe, fair, transparent, and efficient capital markets.”¹⁰ Similarly, Kuwait “strives to adopt the highest standards of accuracy and transparency.”¹¹ However, they prioritize disclosing information and procedural compliance over the United States’ emphasis on fiduciary duty. Despite these differences, the three countries share a common goal: To preserve the market and reduce unfair informational disparities.

III. Comparative Market Analysis: The United States, Turkey, and Kuwait

Several studies have analyzed the profits made by insiders in the United States. Naser Abumustafa and Salah Nusair analyzed stock exchanges in the United States and Kuwait during the 2008 financial crisis.¹² During this time, stock market prices, real estate, and other forms of wealth management plummeted in value. Insiders took advantage and received returns that regular traders could not. When analyzing the purchase of stocks by insiders in the New York Stock Exchange (NYSE), insiders on average beat the S&P 500 by 4.6% within the first year.¹³ Conversely, the profits made after the first year dropped by an average of 3.3% going into the second year.¹⁴ Similarly, when Abumustafa and Nusair analyzed stocks sold by insiders in the same time span, they found insider profits on average compared to the S&P 500 rose by 3.4% and dropped by 1.6% in the first and second year, respectively.¹⁵

4.6% and 3.4% are not remarkable numbers, but when compared to the average return of regular investors, accepted to be around 10%,¹⁶ the insiders are making returns of roughly 14%, which is staggering.¹⁷ Although the net gain on the selling of stocks after two years is not as close when compared to the purchase of stocks, it is significantly more profitable to trade with inside information in short periods of time than it is to make trades and hold those stocks for extended periods. Similarly, insider trading in Kuwait has been shown to be profitable. When the professors analyzed this market, they discovered that insiders buying stocks profited by an average of 1.9% compared to the Kuwait Stock Exchange.¹⁸ 1.9% is not drastic, but it is still an advantage that insiders can capitalize on while regular investors cannot.  In examining the Kuwaiti market, they found they profited on average by 0.9% compared to the Kuwait Stock Exchange.¹⁹ Although these profits are marginal, they accumulate over time into significant gains, incentivizing insiders to continue trading.

In Turkey, Sureyya Burcu Avci, a finance and economics professor at a top Turkish university, conducted an extensive research study from 2008 to 2019 that consisted of nearly 65,000 stock market transactions between insiders, showcasing that insider trading in Turkey is periodically more lucrative than the U.S.²⁰ Avci discovered that “the cumulative abnormal profits in the first week after the trade are significant at 1.46%.”²¹ Although Abumustafa and Nusair did not analyze the profits made by insiders on a weekly basis, a profit of 1.46% in the first week is significant. The insiders made a quarter of the profit made in the U.S. after one month and, after one year, 1.46% rose to 6.58%.²² When compared to the average profit made by insiders in the U.S., the cumulative profit over one year of 6.58% is significantly larger. However, insiders with executive positions have even higher percentage profits; within the first week, “officers and directors…earn the highest profits (4.36%).”²³ Earning 4.36% in the first week highlights how profitable insider trading can be within different countries. 

People with executive positions in the U.S. also trade with inside information. Assistant Professors D. Brian Blank and Dallin Alldredge conducted studies and found that “executives and others with the most intimate knowledge of the company and its operations [at multinational companies] got an even bigger advantage, earning 3.6% per month.”²⁴ Globally, traders earning 3.6% per month beat any market’s yearly average, especially one as volatile as the NYSE. When  compared with the profits made by executives from Turkey and the U.S., it is clear that highly positioned insiders in both markets make large profits, but insiders in the U.S. manage to win more in the long term. Between the three markets, the U.S. profit percentages are remarkably high; it is clear that insider trading in the U.S. is slightly more profitable overall because of the small profits made over a longer time span.

IV. Market Impact and Investor Confidence

In addition to affecting profitability, insider trading damages investor confidence and market efficiency. Andrew Sebastian argues that “the public might perceive the market as unfair,” leading ordinary investors to disengage from participation.²⁵ Law Professor David Rosenfeld also argues that there are individuals who will refrain from investing if they are aware of other market participants possessing unfair advantages.²⁶ Furthermore, Campbell believes “insider trading creates a culture of corruption that hurts market’s liquidity and efficiency.”²⁷ Due to these factors, investors view insider trading as unfair, ultimately discouraging long-term investment and participation in the market. This results in artificial volatility which can, in time, suppress economic growth.

V. Conclusion

Insider trading is marginally more profitable in the United States than in Turkey and Kuwait. However, insiders taking advantage of their information comes at a cost to market integrity. Insider trading results in inequality, discouraged investors, and breached public trust in the market. Although legal frameworks attempt to regulate insider conduct, it is not enforced consistently across jurisdictions. The SEC must adapt; otherwise, insider trading will continue to occur, leaving the average market participant at a significant fiscal disadvantage.

1. H. R. 2655, 117th Cong. (2021) (commonly known as the Insider Trading Prohibition Act) (passed to amend the Securities Exchange Act of 1934 to prohibit certain securities trading and related communications by those who possess material, nonpublic information). ↩︎
2. Id. ↩︎
3. Dara-Abasi Ita, What is Insider Trading and When Is It Legal?, Investopedia (Apr. 2025), https://www.investopedia.com/terms/i/insidertrading.asp. ↩︎
4. 15 U.S.C. § 78j(b) (1934). ↩︎
5. 17 C.F.R. § 240.10b-5 (1951). ↩︎
6. Dirks v. SEC, 463 U.S. 646 (1983). ↩︎
7. United States v. O’Hagan, 521 U.S. 642 (1997). ↩︎
8. Donald C. Langevoort, Insider Trading and the Fiduciary Principle: A Post-Chiarella Restatement, 70 Cal. L. Rev. 1, 1–5 (1982). ↩︎
9. Id. at 7. ↩︎
10. Ayse Yuksel Mahfoud, Doing Business in Türkiye: Capital Markets, Norton Rose Fulbright (Feb. 2025). https://www.nortonrosefulbright.com/en-us/knowledge/publications/87504836/doing-business-in-turkey-capital-markets. ↩︎
11. Boursa Kuwait is the operator of the Kuwait Stock Exchange, the national stock market of Kuwait. Disclosure and Transparency, Boursa Kuwait, https://www.boursakuwait.com.kw/en/disclosures-and-transparency; About Boursa Kuwait, Boursa Kuwait, https://www.boursakuwait.com.kw/en/history. ↩︎
12. Naser Abumustafa & Salah Nusair, Insider Trading Returns During the 2008 Financial Crisis: Evidence from the United States and Kuwait, 21 Applied Fin. Econ. 301 (2011). ↩︎
13. Id. at 304. The S&P (Standard and Poor’s) 500 is a stock market index that tracks the stock performance of five hundred leading companies on stock exchanges in the United States. ↩︎
14. Id. ↩︎
15. Id. ↩︎
16. Rebecca Lake, What is the Average Stock Market Return?, SoFi (May 2025), https://www.sofi.com/learn/content/average-stock-market-return/. ↩︎
17. Abumustafa & Nusair, supra note 12. ↩︎
18. Id. ↩︎
19. Id. ↩︎
20. Sureyya Burcu Avci, Insider Trading Profitability in Turkey, Eur. J. Finance 1 (2021). ↩︎
21. Id. ↩︎
22. Id. ↩︎
23. Id. ↩︎
24. D. Brian Blank & Dallin Alldredge, Insider Trading–the Legal Kind–is a Lot More Profitable if You Work for a Multinational Company, The Conversation (Aug. 2023) https://theconversation.com/insider-trading-the-legal-kind-is-a-lot-more-profitable-if-you-work-for-a-multinational-company-210242/. ↩︎
25. Andrew Sebastian, Arguments For and Against Insider Trading, Investopedia (Sep. 2023), https://www.investopedia.com/articles/markets-economy/092216/why-insider-trading-bad-financial-markets.asp. ↩︎
26. David Rosenfeld, The Impact of Insider Trading on the Market Price of Securities: Some Evidence from Recent Cases of Unlawful Trading, 44 J. Corp. Law, 65, 68 (2018). ↩︎
27. Tessa Campbell & Choncé Maddox, Insider Trading: Impact and Legal Boundaries, Bus. Insider (Sep. 2024), https://www.businessinsider.com/personal-finance/investing/insider-trading. ↩︎