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> and therefore harms everyone in the market. I've heard this argument before and I'm not sure I buy it. Isn't 'efficient price discovery' the primary selling
by cwkoss 5y ago
> and therefore harms everyone in the market.
I've heard this argument before and I'm not sure I buy it.
Isn't 'efficient price discovery' the primary selling point of markets? Does the artificial suppression of information until "everyone" (but in practice mostly just HFTs these days) has equal chance to react to it meaningfully hurt retail investors, or is it mostly just taking profits from other people trying to game earnings announcements for profit?
- a-dub 5y agowhat do you think would happen if insider trading were not illegal?
- cwkoss 5y agoThere would be less volatility around earnings announcements, because the market would have already reacted to that information. i.e. markets would become accurate more quickly
- a-dub 5y agoright, but all those reacting would be insiders. wouldn't that mean that my 401k, or my college endowment, or my favorite foundation's endowment would be left holding the bag? why would any institutions invest in such a system?
- cwkoss 5y agoHmmm. I wonder to what extent institutional investors are able to get out early when there is an earnings miss. I guess I assume they usually get front run by day traders anyways, but not sure how/where to find data to answer that question.
- a-dub 5y agomoreover, if insiders within a listed company were able to trade that company's stock freely, wouldn't it be more consistently profitable for them to intentionally generate surprise volatility in their company's stock price, and then trade against the market with the alpha that they've engineered for themselves? how many other schemes that ultimately defraud investors could be cooked up? imagine a company that reported realtime profit and loss through the magic of computers in a world with no insider trading regs. the sales team (or whatever team has the biggest ability to impact realtime pnl) would be making and cancelling deals just so they could trade on them. quarterly earnings and embargoes around them are kind of the last bastion of the idea of ensuring long term incentives, if anything we need more long term incentives, not less.
- m101 5y agoPart of my point is that people's ability to make an algorithm to react quickly is unequal, even if the opportunity to do so is equalised under insider trading regs. The profit will flow towards those with the ability, which the regulations favour.