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> It isn't fair (and it isn't good for market efficiency) for insiders to act on their inside information. How is this not good for market efficiency? Insiders

> It isn't fair (and it isn't good for market efficiency) for insiders to act on their inside information. How is this not good for market efficiency? Insiders have material information about company performance. Trading on that information means that it is (marginally) reflected in the market price. That sounds like a more efficient market to me. Also, I’d like to see your full specification of “fairness” in capital markets. Stock markets are not casinos, they are economic tools for directing capital to its highest use. “Fairness” doesn’t seem like a relevant factor here.

wtallis 5y ago
Making markets more efficient should not be an end goal for any public policy. However, making markets fair is a non-pathological goal for public policy to work toward.
- xpe 5y ago
  What particular political philosophies make this particular claim?
  - wtallis 5y ago
    What claim?
xpe 5y ago
This is debated. I'm not an expert in the field; I'm not sure how "hotly" debated it is. Some sources to consider include: 1. From Brittanica' ProCon.org: https://insidertrading.procon.org/view.answers.php?questionID=001055 https://insidertrading.procon.org/view.answers.php?questionI... 2. Finnerty, Joseph E. "Insiders and market efficiency." The journal of finance 31.4 (1976): 1141-1148. From the latter: > THE STRONG-FORM of the efficient market hypothesis assumes all available public and private information is fully [reflected] in a security's market price. The strong-form, in terms of market participants, also assumes that no individual can have higher expected trading profits than others because of monopolistic access to information. One possible test of the strong-form is to determine whether insiders earn better than average profits from their market transactions. To ascertain if the market is truly efficient will involve determining how well insiders do relative to the market in general. To date, some work has already been done in evaluating rates of return earned by insiders trading for their own accounts. ... I would wager (in a prediction market) that many people who cite the efficient market hypothesis may be unaware of the second sentence in the quote above.
xpe 5y ago
> "...Ultimately, insider trading is an inefficient way of achieving market efficiency, because insiders earn all their profits on the lag between when they start selling and when the market figures out what's going on. This gives them every reason to hoard information, with the result that stock prices are out of whack for longer than they otherwise would have been. Markets thrive on transparency, but insider trading thrives on opacity..." -- Oct. 31, 2005 - James Surowiecki https://insidertrading.procon.org/view.answers.php?questionID=001055 https://insidertrading.procon.org/view.answers.php?questionI...

wtallis 5y ago

Making markets more efficient should not be an end goal for any public policy. However, making markets fair is a non-pathological goal for public policy to work toward.

xpe 5y ago
What particular political philosophies make this particular claim?
- wtallis 5y ago
  What claim?

xpe 5y ago

This is debated. I'm not an expert in the field; I'm not sure how "hotly" debated it is. Some sources to consider include: 1. From Brittanica' ProCon.org: https://insidertrading.procon.org/view.answers.php?questionID=001055 https://insidertrading.procon.org/view.answers.php?questionI... 2. Finnerty, Joseph E. "Insiders and market efficiency." The journal of finance 31.4 (1976): 1141-1148. From the latter: > THE STRONG-FORM of the efficient market hypothesis assumes all available public and private information is fully [reflected] in a security's market price. The strong-form, in terms of market participants, also assumes that no individual can have higher expected trading profits than others because of monopolistic access to information. One possible test of the strong-form is to determine whether insiders earn better than average profits from their market transactions. To ascertain if the market is truly efficient will involve determining how well insiders do relative to the market in general. To date, some work has already been done in evaluating rates of return earned by insiders trading for their own accounts. ... I would wager (in a prediction market) that many people who cite the efficient market hypothesis may be unaware of the second sentence in the quote above.

xpe 5y ago

> "...Ultimately, insider trading is an inefficient way of achieving market efficiency, because insiders earn all their profits on the lag between when they start selling and when the market figures out what's going on. This gives them every reason to hoard information, with the result that stock prices are out of whack for longer than they otherwise would have been. Markets thrive on transparency, but insider trading thrives on opacity..." -- Oct. 31, 2005 - James Surowiecki https://insidertrading.procon.org/view.answers.php?questionID=001055 https://insidertrading.procon.org/view.answers.php?questionI...