Monday, April 28, 2025

 

China’s insider trading crackdown is backfiring. Here’s why




Virginia Tech

Pengfei Ye 

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Pengfei Ye

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Credit: Photo courtesy of Pengfei Ye Virginia Tech

 



Would stricter insider trading regulations make financial markets fairer? China’s 2017 sell-by-plan mandate was designed to do just that by requiring corporate executives to predisclose stock sales – a move aimed at preventing them from cashing out before bad news breaks.

But a new study reveals a major loophole: Instead of stopping insider trading, some executives have found a way to game the system. They preschedule sales weeks in advance to quietly offload shares before their stock tanks.

Virginia Tech researcher Pengfei Ye and colleagues at the Shanghai University of Finance and Economics analyzed trading data before and after the mandate took effect. Their findings, published in the Journal of Accounting and Economics, reveal that while the rule reduces some forms of insider trading, it fails to stop executives from profiting from private information.

"Regulations can limit insider trading, but without strong corporate governance, insiders will always find new ways to work around them," said Ye, assistant professor at Virginia Tech’s Pamplin College of Business

Insiders still beating the market

When executives sell stock before bad news goes public, it undermines market fairness and erodes investor trust. China’s sell-by-plan mandate aimed to prevent this by requiring executives to announce their stock sales at least six months in advance.

To measure the policy’s impact, Ye’s team analyzed four years of trading data – two years before and two years after the rule was enacted – using a difference-in-differences approach. They compared insider trades with those of unregulated relatives to see whether opportunistic behavior declined.

The result? Opportunistic insider selling dropped by up to 12 percentage points after the mandate took effect – a sign that the regulation had some impact. 

But a new form of exploitation emerged. Instead of making last-minute trades before bad news, executives started planning their sales far in advance, ensuring they could still profit from stock declines.

"Executives who know bad news is coming don’t need to trade at the last minute anymore," Ye said. "They just set up a sell plan weeks in advance. By the time the news reaches the public, they’ve already cashed out."

The study found that between 8.8 percent and 28.2 percent of predisclosed stock sales were likely motivated by insider knowledge of impending losses. These trades were far more common in companies with weak governance, while firms with stronger oversight saw little to no abuse.

Can markets detect insider abuse? 

If executives are gaming the system, can the market tell the difference between routine stock sales and those based on private knowledge?

Ye and his research team tested this – and the results were alarming.

They found no significant difference in how the stock market reacted to genuine preplanned sales versus opportunistic ones. Investors simply couldn’t tell the difference.

"If the market can’t distinguish between routine and opportunistic trades, insiders can keep profiting without consequences," Ye said. 

This raises serious concerns about whether disclosure-based regulations actually protect investors – or if they just give insiders a legal cover to trade on private information.

How to close the loophole

One potential fix? A longer waiting period between when insiders announce a sale and when they can actually execute it.

Currently, China’s cooling-off period is just 15 trading days – far shorter than the 90-day waiting period required under the U.S. Securities and Exchange Commission’s (SEC) updated Rule 10b5-1. 

But the study found that insiders in China typically learn about bad news at least 25 trading days in advance. This means the existing 15-day waiting period isn’t long enough to neutralize their advantage.

"A longer cooling-off period would make it harder for insiders to exploit private information," Ye said. "But regulators also have to balance this against the needs of executives who sell stock for legitimate financial reasons."

The findings contribute to a growing global debate: How can policymakers prevent insider trading without placing unfair restrictions on corporate executives?

Beyond China

China isn’t alone in struggling to regulate insider stock sales. The  SEC’s Rule 10b5-1, originally designed to control insider trading through predisclosed plans, also has been criticized for allowing similar loopholes.

Ye hopes his research will inform future regulatory reforms to protect investors.

"Stronger corporate governance is key to preventing insiders from exploiting these loopholes," Ye said.

Ye conducted the study with Qingsheng Zeng and Cheng Zhang of the Shanghai University of Finance and Economics. The research was supported by the National Natural Science Foundation of China. 

 

Extreme rainfall – A long-standing hypothesis on temperature dependence finally settled?




University of Potsdam

Installation of weather stations 

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Installation of weather stations by the research group (left: Yahaya Bashiru, right: Maxime Colin), with a thunderstorm cloud cluster approaching in the background on 21 July 2023, Bremen (Germany).

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Credit: Irene Livia Kruse





Extreme rainfall can cause rapid flooding, so-called “flash flooding”. How does such extreme rainfall change with temperature? This question has been studied for decades by using appropriate recordings of rainfall and temperature, measured at short intervals of one hour or less.

Rainfall and clouds form when the water vapor in the air saturates, thus forming small droplets that eventually lump together to form rain drops. According to the Clausius-Clapeyron relation, saturation requires roughly 7 percent more vapor when temperatures rise by one degree Celsius. This relation might, as an oversimplified image, be motivated by a sponge that can capture more water as temperatures increase. An extreme rainfall event in this image corresponds to squeezing the sponge to release most of its water.

This hypothesis had been challenged in 2008 by analysis of a long timeseries of rainfall data in the Netherlands. The authors of that study, Lenderink and van Meijgaard, concluded from their statistical approach that the Clausius-Clapeyron relation was insufficient to describe the increase in extreme rainfall, in particular that of thunderstorms which could increase at 14 percent per degree Celsius – thus twice the rate of Clausius-Clapeyron.

In the past 17 years the work by Lenderink and van Meijgaard, now cited more than 1000 times, has led to numerous investigations into the phenomenon, without being able to unambiguously confirm or reject the groundwork laid out by the Netherlands study. In particular, it was difficult to determine, in how far the blend of different rainfall types could give rise to statistical superpositions.

The current work takes a detailed look at two precipitation types: stratiform rainfall that is continuous and uniform in intensity compared to short rain showers typical for thunderstorms. ”We make use of a large and high-frequency dataset from Germany which is combined with a novel lightning detection dataset. Since lightning indicates thunderstorm activity, stratiform rainfall can be separated in this way,” explains Nicolas Da Silva from the University of Potsdam. “The result is rather striking: when carefully selecting only clear thunderstorm rainfall and studying the extremes at each temperature, the increase is almost perfectly along the Clausius-Clapeyron theory,” adds Jan O. Härter from the University of Potsdam who is also affiliated with the Leibniz Centre for Tropical Marine Research (ZMT). Equally, when selecting only for stratiform rainfall alone, the data fit the Clausius-Clapyron relation very well. Only when combining the statistics of both types of rainfall, much higher temperature increase rates emerge, as proposed in the study of Lenderink and van Meijgaard. The authors Da Silva and Härter state that this ’super-Clausius-Clapeyron’ increase is thus of purely statistical origin such that a long-standing controversy may now finally be settled.

However, the current study points out that the statistical ‘super-Clausius-Clapeyron’ increase in rainfall extremes does apply to clusters containing both thunderstorm and stratiform clouds. Such cloud clusters are responsible for most of the extreme flash flood inducing rainfall. “Assuming the temperature changes projected for the coming decades under climate warming, extreme rainfall may indeed reach unprecedented risk levels for humans and infrastructure, especially in urban areas,” the authors stress.

 

Link to Publication: Nicolas A. Da Silva and Jan O. Haerter, 2025, Super-Clausius-Clapeyron scaling of extreme precipitation explained by shift from stratiform to convective rain type, Nat. Geosciencehttps://www.nature.com/articles/s41561-025-01686-4

 

Image 1: Installation of weather stations by the research group (left: Yahaya Bashiru, right: Maxime Colin), with a thunderstorm cloud cluster approaching in the background on 21 July 2023, Bremen (Germany). Image Credit: Irene Livia Kruse.

Image 2: A thunderstorm cloud cluster and its typical shelf cloud ahead of heavy rainfall near Bremen (Germany) on 21 July 2023. Image Credit: Maxime Colin.

  

A thunderstorm cloud cluster and its typical shelf cloud ahead of heavy rainfall near Bremen (Germany) on 21 July 2023.

Credit

Maxime Colin

 

Bacteria’s mysterious viruses can fan flames of antibiotic damage, according to new model




Virginia Tech





Some things just go together in your belly: peanut butter and jelly, salt and pepper, bacteria and bacteria-eating viruses.

For the bacterial species that inhabit your gut, there’s a frenzy of viruses called bacteriophages that naturally infect them. Although they co-evolved with bacteria, phages get far less glory. They’re harder to classify and so deeply entangled with the bacteria they target that scientists struggle to understand what functions they serve.

But what if there was a way to compare the exact same gut microbiome conditions with and without phages?

Virgina Tech biologist Bryan Hsu’s team found a way to do just that.

Hsu and graduate student Hollyn Franklin built a model that allows them to diminish phage communities from a mouse gut microbiome — and then bring them back — without affecting the bacteria. On a test run of their model, researchers found evidence that phages may increase gut bacteria’s sensitivity to antibiotics. Their results were published April 28 in the journal Cell Host and Microbe.

It’s for research, Mom

What could inhibit a bacteria’s viruses but not the bacteria itself? In her early search through the literature, Franklin found a chemical compound called acriflavine that fit the bill. It’s a component of a widely available medication used in Brazil to treat urinary tract infections (UTI).

Fortuitously, a member of Hsu’s lab and paper co-author, Rogerio Bataglioli, is a native Brazilian. He shipped a massive order of acriflavine to his parent’s house. But he forgot to tell his parents it was coming, Hsu said.

“His mom called, and asked, 'Is everything OK? Because 20 boxes of UTI treatment just arrived under your name.'”

After that got sorted, Franklin began administering acriflavine to lab mice. Over a period of 12 days, there was a dramatic reduction in the concentration of viral particles. And they didn’t bounce back when she stopped administering the drug.

But when Franklin reintroduced a tiny sample of the mouse’s own gut microbiome, extracted before treatment, the natural phage populations sprang back to life.

“It goes away when we wanted it to, and came back when we wanted it to,” said Hsu. “Which means we have a bacteriophage conditional mouse model.”

Or, more fun: BaCon mouse model.

Exacerbating antibiotic damage

To see if the mouse model had some significance for health, Hsu’s research team went straight to one of the hottest topics in the field: the collateral damage that antibiotics have on a patient’s resident microbial population.

Antibiotics save millions of lives every year, but the drug rages indiscriminately through bad, benign, and beneficial bacteria alike, disrupting our gut microbiome and leaving us vulnerable to new pathogens.

Could phages be playing a role in the destructive wake of an antibiotic treatment? Hsu and Franklin used their BaCon mouse model to ask this question and administered antibiotics to mice with and without phage populations.

Their results suggest that phages increase the sensitivity of bacteria to antibiotics.

“It’s hard to make definitive conclusions, but these results are telling us that phages have some significance for how we respond to antibiotics,” Hsu said.

The next questions, according to Franklin, will explore if phages caused these effects or are simply correlated with them, and what role phages play in diseases — which would open new doors in microbiome studies.

Answers may be served with a side of BaCon mouse.

Funding for this work was provided by the Virginia Tech Institute for Critical Technology and Applied Science, the National Institute of General Medical Sciences of the National Institutes of Health.

Research collaborators include:

  • Frank Aylward, associate professor of biological sciences
  • Anh Ha, postdoctoral research associate
  • Rita Makhlouf, graduate student, biological sciences
  • Zachary Baker, graduate student, biological sciences
  • Sydney Murphy ´24, former undergraduate researcher in the Hsu Lab
  • Hannah Jirsa  ´23, former undergraduate researcher in the Hsu Lab
  • Joshua Heuler, graduate student, biological sciences
  • Teresa Southard, associate professor of anatomic pathology

 

Community resources help food-insecure kids make fewer ER visits




University of Chicago Medical Center





In a new clinical study published in JAMA Pediatricsresearchers at the University of Chicago Medicine found that a low-intensity program that “prescribes” community resources to every parent or other primary caregiver of a hospitalized child reduced the use of acute care for children of food-insecure families in the following year, saving potentially thousands of dollars in healthcare expenditures while demanding little more than minutes of staff time per family.

“Across history, doctors have always treated patients with consideration for the realities of their everyday lives,” said first author Stacy Lindau, MD, the Catherine Lindsay Dobson Professor of Obstetrics and Gynecology at UChicago Medicine. “Today, with digital medical records and community resource referral technology in our workflow, clinicians can easily connect patients to vital community resources for wellness, disease self-management and caregiving. This study finds that using a few minutes as part of the hospital discharge process to connect families to health-promoting resources in the community is good for kids and likely sustainable since it may lower healthcare costs."

A simple prescription for social needs

Over three years, Lindau’s team randomized 640 parents and other primary caregivers of children hospitalized at an urban pediatric hospital to one of two arms in the trial. Half of those who enrolled received usual discharge instructions, while the other half also received an intervention called CommunityRx-Hunger, the pediatrics arm of the larger CommunityRx program. Rather than restricting the study group only to parents who screened positive for social risks or needs, all were eligible. Food secure and food insecure parents in the intervention arm received the intervention — a universal approach to social care.

In the CommunityRx-Hunger group, each caregiver received a customized “HealtheRx” printout listing food pantries, rental-assistance agencies, transportation aid and other resources in their specific community. For the next three months, an automated texting system sent reminders and fresh links; caregivers who replied to the texts got a human response from a navigator. Caregivers could reach out to navigators for a full year, but the proactive pings stopped after month three.

Importantly, neither families nor research staff knew who received the intervention versus standard care.

“Although our findings corroborate prior studies in other populations, this is — to our knowledge — the first double-blind randomized trial in the social care field,” Lindau said. “This gold-standard evidence builds confidence that a relatively low intensity and highly scalable social care intervention using technologies that are widely used across the U.S. healthcare system actually can reduce costly acute healthcare utilization."

Major reductions in acute healthcare use

In their primary analysis, investigators focused on the 223 parents and other caregivers who reported food insecurity in the year before admission, because food insecurity is the most prevalent social condition known to compromise both child and adult health. 

At the three-month checkpoint, 69% of food-insecure caregivers who received CommunityRx-Hunger rated their child’s health “excellent or very good,” compared with just 45% of those who received usual care. A year after receiving the intervention, only 30% of food-insecure children with a parent in the intervention group required an emergency visit, versus 52% in the standard care group. Hospital readmissions also trended downward, particularly for children of parents who requested additional resource information.

Previous community resource-focused interventions required more human effort. One hired social-work teams to make home visits and attend clinic appointments, logging up to five hours of staff time per family. In contrast, administering CommunityRx-Hunger intervention only required about 50 staff hours in total across the entire intervention group.

“We achieved a very similar magnitude of impact on acute health care utilization reduction with this very low-intensity approach, an important advance toward sustainability” Lindau said.

To estimate financial impact, the researchers applied national averages for pediatric ED and inpatient costs to the utilization counts reported by families. The difference came to roughly $3,000 saved per food-insecure child, easily eclipsing the modest expense of automated texting and navigator time.

Benefits of universal delivery

These findings arrived just as the U.S. Centers for Medicare and Medicaid Services issued a proposed rule that included the removal of directives for hospitals to screen for social drivers of health. In the absence of such screening, universally-delivered programs like CommunityRx-Hunger offer an especially important solution to addressing health-related social conditions.

“In this study, one third of food-secure parents in the intervention group reached out for additional resources, a similar rate as we saw among food-insecure parents, sometimes for really urgent needs like mental health crisis, a safety concern and emergency housing,” said co-author Jennifer Makelarski, PhD, MPH, an epidemiologist who is the analyst team lead for CommunityRx. "If we limited the intervention only to those families who screened positive for food insecurity, many critical needs could have gone unaddressed."

“This finding drives home the fact that social risks are states, not traits,” Lindau added. “People move in and out of social risk, and a child’s hospitalization can be the trigger.”

Lindau and Makelarski also pointed to previous findings that more than half of CommunityRx participants used their HealtheRx list to connect someone else to local resources, indicating that a universally-delivered program can have ripple effects on communities as a whole, helping keep children healthier, caregivers less stressed and hospitals less crowded.

Since many U.S. health systems already license community-resource-referral platforms and patient texting tools, replicating CommunityRx-Hunger on a larger scale is highly feasible. Someday, a standard discharge process at hospitals across the country could include not only medications and follow-up appointments but also information about healthful community resources — pinged straight to a patient or caregiver’s phone.

Low-Intensity Social Care and Child Acute Health Care Utilization: A Randomized Clinical Trial” was published in JAMA Pediatrics in April 2025. The research was supported by funding from the National Institutes of Health (NIH)/National Institute on Minority Health and Health Disparities. Co-authors include Stacy Tessler Lindau, Jennifer A. Makelarski, Victoria A. Winslow, Emily M. Abramsohn, Veera Anand, Deborah L. Burnet, Charles M. Fuller, Mellissa Grana, Doriane C. Miller, Eva S. Ren, Elaine Waxman and Kristen E. Wroblewski.