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There's also a not insignificant number of economist who think it would be better if it was legal. Insider trading laws remove information from the system. A c

by latch 8y ago

There's also a not insignificant number of economist who think it would be better if it was legal. Insider trading laws remove information from the system. A common argument is that Enron could have never Enroned without the help of insider trading laws. The big winner here is Wallstreet because the information asymmetry still exists, and they now have the most knowledge that can legally be acted upon. (plus they can act on illegal knowledge and it's much harder to prove than anyone else acting on it).

sverhagen 8y ago
Layman wondering here: would legal inside trading not encourage the few with the inside knowledge to themselves exhaust the benefit that is to be had from the information, at the expense of everyone else? Including shareholders?
- latch 8y ago
  (1) is the best [i think] unbiased analysis I've seen on the subject that tries to look at it from many points of view. It seems very complicated, and I don't really understand. But it seems like in either cases (legal or illegal) the people who benefits and those who suffers is going to change in every case. For the average investor, in some cases having more efficient stock prices would be a benefit, in other cases, the added information asymmetry would be a unfair. Three points: 1 - Companies could still ban insider trading if that proved more efficient for them. If liquidity was low because insider trading was allowed, they could disallow it. The reverse is also true. So at least companies would have the choice (and investors would also have the choice of where to invest). 2 - While an insider could equally benefit from good and bad news, they are still incentivized towards positive results (salary, bonuses, keeping their job, reputation) 3 - My real problem with making insider trading illegal is that it's completely impossible to enforce consistently and fairly. This adds uncertainty (how much insider trading is going on in your current investments?) I think insider trading only applies to buying/selling, but what if someone has insider knowledge that causes them to NOT take an action. That seems as unfair but can't be enforced.. (1) https://www.frbatlanta.org/-/media/documents/research/publications/economic-review/1997/vol82no4_hu-noe.pdf https://www.frbatlanta.org/-/media/documents/research/public...
- conanbatt 8y ago
  From an economic perspective, insider trading has plenty of nuances. On one hand, you have the accountants/analysis that build the company numbers to be made public for investors to trade, and because they get the first peek at information that is not really theirs, if they buy/sell on that then they are definitely commiting this act. On the other hand, you could have Elon musk reading information every day that could sway him to buy or sell at different prices, from the unique vantage point of his position: this is raw information that is better out there than repressed. (investors wuld know what the CEO thinks). I have an amateurish devotion to economics and insider trading is one space where its all nuance.

by latch 8y ago

sverhagen 8y ago

Layman wondering here: would legal inside trading not encourage the few with the inside knowledge to themselves exhaust the benefit that is to be had from the information, at the expense of everyone else? Including shareholders?

latch 8y ago
(1) is the best [i think] unbiased analysis I've seen on the subject that tries to look at it from many points of view. It seems very complicated, and I don't really understand. But it seems like in either cases (legal or illegal) the people who benefits and those who suffers is going to change in every case. For the average investor, in some cases having more efficient stock prices would be a benefit, in other cases, the added information asymmetry would be a unfair. Three points: 1 - Companies could still ban insider trading if that proved more efficient for them. If liquidity was low because insider trading was allowed, they could disallow it. The reverse is also true. So at least companies would have the choice (and investors would also have the choice of where to invest). 2 - While an insider could equally benefit from good and bad news, they are still incentivized towards positive results (salary, bonuses, keeping their job, reputation) 3 - My real problem with making insider trading illegal is that it's completely impossible to enforce consistently and fairly. This adds uncertainty (how much insider trading is going on in your current investments?) I think insider trading only applies to buying/selling, but what if someone has insider knowledge that causes them to NOT take an action. That seems as unfair but can't be enforced.. (1) https://www.frbatlanta.org/-/media/documents/research/publications/economic-review/1997/vol82no4_hu-noe.pdf https://www.frbatlanta.org/-/media/documents/research/public...
conanbatt 8y ago
From an economic perspective, insider trading has plenty of nuances. On one hand, you have the accountants/analysis that build the company numbers to be made public for investors to trade, and because they get the first peek at information that is not really theirs, if they buy/sell on that then they are definitely commiting this act. On the other hand, you could have Elon musk reading information every day that could sway him to buy or sell at different prices, from the unique vantage point of his position: this is raw information that is better out there than repressed. (investors wuld know what the CEO thinks). I have an amateurish devotion to economics and insider trading is one space where its all nuance.