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If everyone with inside information could trade on it without fearing the law, they would reveal the predicted effect of said information via movements in the p

• bediger4000 11y ago
  I agree, that narrow viewpoint of fairness would increase. But wouldn't the general perception of fairness decrease? I mean, all those Edward D. Jones strip mall and small town stockbrokers would probably loose business because of the perception that only bigtime Wall Street insiders can actually catch good deals. Of course, the sleazier Edward D. Jones strip mall and small town stockbrokers would probably increase their own profitably in the short term by lying to customers about having insider info. It would work until the gullible customers were tapped out.
  • losvedir 11y ago
    > But wouldn't the general perception of fairness decrease? I mean, all those Edward D. Jones strip mall and small town stockbrokers would probably loose business because of the perception that only bigtime Wall Street insiders can actually catch good deals. Sounds like a good outcome to me, since that's basically the case anyway...
• Natanael_L 11y ago
  When those insiders represents a minority (in capital available to trade with), the positive effects of their trades from improved price signals can be far smaller than the negative effects from the bad incentives created. Consider a government administrator trading with relatively small sums, knowing what effect his unpublished decisions will have. He can make gains that are large for him, while causing significant losses for others that otherwise wouldn't have happened.
  • nanis 11y ago
    I said free and legal insider trading by everyone. People in the company would also be able to trade on their information regarding potential government actions etc. Markets are information aggregators.
    • Natanael_L 11y ago
      Some people have very disproportionate access to accurate information, and this disproportionate power and influence. You can't dismiss the harm abuse of that can cause. Just look at all the staged games done for the sake of betting profits.
      • nanis 11y ago
        So, the situation will be no worse than it currently is, but with the upside that more information would be available, and tons of money would not be wasted on stupid investigations. I do recommend you watch "American Greed" on CNBC.
        • Natanael_L 11y ago
          Except it would, abuse would be entirely risk free
• mamon 11y ago
  Free and legal insider trading would be the end of stock markets. If it becomes publicly known that some people trade stocks based on insider information then for all the others investing in stocks stops making sense. It's like casino publicly announcing that all it's roulette wheels are fraud and noone will ever win on them - this would wipe all the gamblers out.
• hristov 11y ago
  Nope, what would happen is that everyone without inside information would simply not trade in that security. You would not have a stock market because only people that know the company very well would dare buy stock in it. The cost of capital for companies would skyrocket and the US economy would tank. It is amusing to me how when all these amateur game theorists create these hypotheticals to prove that insider trading is good, they always assume that there is an endless supply of chumps with an endless supply of money willing to take the opposite end of the trade. Well, let me tell you, people are not that stupid. Especially people with money. Back in the dark ages, most people with money felt the best place to keep them was locked in a chest in the deepest room in a large castle. There was very little investment, and the dark ages were a time of extreme poverty. It is only through a long series of laws and institutions developed over couple of hundred of years, that we have reached this point of mobility of capital, which allows capital to go where it is most useful, and greatly benefits the economy. But if we remove investor protections things can slide back very easily and very quickly.
  • eru 11y ago
    Have you actually looked into stock markets (in other places and other times) that did not penalize trading on insider information?
    • GhotiFish 11y ago
      That question almost reads like a criticism, but I'd like to throw my hat into the ring here and say I'd like to know how markets cope in this situation. Do we have real world examples?
      • eru 11y ago
        Lots of real world examples. Eg Japan and Germany still have lighter regulations on insider trading, and in the US and UK people used to trade before insider trading was banned. Insider trading probably ought to be thought about when designing regulations---but I am not convinced either way that it should be banned.
    • 11y ago