Allowing insider trading could also lead to much more "herding" behaviour: if the market starts moving before the official news event, it probably means someone

Allowing insider trading could also lead to much more "herding" behaviour: if the market starts moving before the official news event, it probably means someone (a big player) knows something, so everyone else is going to get on board the move. Now add a second order effect to this: people (big players) will try gaming the system by starting a herd effect before the big news. Especially if you make the herd go in the wrong direction you are going to win big time. All of this leads to exactly the opposite of what you are hoping for: price discovery. It's just chaos and instability, and probably harmful to the market in general.