5 ms·

Insider trading results in more accurate pricing.

by prvit 4y ago

last_responder 4y ago
How does that work? Just saying something does not make it true.
- prvit 4y ago
  Price discovery is a major function of markets, insider trading adds more information and benefits all parties by allowing for more accurate pricing of whatever is being traded.
  - toomuchtodo 4y ago
    US regulators are targeting fairness vs most efficient markets and price discovery.
    - prvit 4y ago
      Indeed, but their definition of “fairness” is rather dishonest. This doesn’t benefit 99% of market participants. US regulators would rather specialist companies with the fastest algorithms and connections to process corporate announcements reap all the benefits.
  - renewiltord 4y ago
    Yeah, but that's not the only function. Which is why US exchanges have the notion of the Intermarket Sweep Order, etc.
    - prvit 4y ago
      ISOs directly aid price discovery, no?
      - renewiltord 4y ago
        Don't they impede price discovery by increasing the cost to move the price?
        prvit 4y ago
        If you focus only on price discovery happening in a specific market center, sure. However, because it’s 2022 and we have the internet and all I’m not sure it really makes sense to focus on specific market centers instead of the market as a whole. Of course HFT makes this far more complicated so it’s difficult to come up with a clear answer in either direction. The Clean sweep study (https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff2975/chakravarty2012.pdf?download=true https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff297...) seems to suggest that ISOs have a greater impact on prices and add more information to markets than “regular” orders.
        renewiltord 4y ago
        Interesting. Thank you.
  - ajsharp 4y ago
    Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not real buy-side demand pricing information because the insider (typically) intends to sell as soon as the price pops, once more market participants have been pulled into the trade because it's going up -- key knowledge the insider knew the market did not. Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule.
    - prvit 4y ago
      > Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not illegal because insiders possess knowledge the rest of the market does not. Insider trading is illegal because it creates a false perception of unfairness among less sophisticated market participants. (There are other decent reasons too, Matt Levine has written about this extensively too. Yours isn’t one of them) > Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule. This only makes sense in a context where all parties have access to equal resources, but that’s not true. A hedge fund paying visa for transaction flow, or flying spy planes above a factory to track production will have more information than other participants.
      - ajsharp 4y ago
        You're so far down the contrarian rabbit hole on this take, you're arguing the nuances of why, precisely, insider trading is illegal. It doesn't really matter why, it is, and for good reasons (agree with or don't, whatever). This ain't the hill.
        prvit 4y ago
        It’s not a “contrarian rabbit hole”. Whether or not insider trading should be illegal is a hotly contested topic among economists. >It doesn't really matter why, it is, and for good reasons Would you like to share the good reasons why it doesn’t matter?
  - notahacker 4y ago
    Insider trading can lead to more accurate pricing at a particular time by releasing information earlier than it otherwise would have been released (albeit selectively in a way designed to maximise harm to people on the other side of the trade the insiders usually have some sort of fiduciary duty to). It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. Suffice to say the dominant trend in crypto markets is not rapid convergence on a relatively stable price...
    - prvit 4y ago
      > (albeit selectively in a way designed to maximise harm to people the insiders usually have some sort of fiduciary duty to). That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. > It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. In the US that’s just called “wire fraud” and not “insider trading”.
      - notahacker 4y ago
        > That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. Of course there is. When prices go up, insiders profit at the expense of shareholders who sell to them. In the absence of insider traders, non-insider shareholders collectively achieve better returns; ergo they are harmed by the presence of insider trading on positive or negative information. (The only time it wouldn't be the case is if the prices move in the opposite direction to the one the insiders are expecting due to some other unanticipated development which is far more significant than their information advantage) > In the US that’s just called “wire fraud” and not “insider trading”. Much easier to prove the insider trading in the run up to a profit warning than prove an entity was intentionally mismanaged to create that opportunity and its earlier predictions of success were fraudulent and not just incorrect.
  - stjohnswarts 4y ago
    If you want insider trading then take the company private and do all the trading you want. Public companies and investors should be able to count on insider trading being illegal. The punishments need to much more severe and extremely hard to get out of in court.
arcticbull 4y ago
Pricing is equally accurate, the difference is latency. That reduction in latency though comes at a high cost.
- prvit 4y ago
  It’s not equally accurate. Markets are supposed to price in the future. “Latency” just means that the future isn’t priced in, which results in less accurate pricing.
  - arcticbull 4y ago
    The price reflects the consensus knowledge of participants. Insiders cannot participate. Therefore, the price is accurate. Addition of new knowledge will happen in time, therefore I maintain this is a latency issue not an accuracy issue. The markets don't price in the future, they guess it.
    - prvit 4y ago
      Latency is inaccuracy, just on a different axis of the graph. Insider trading adds to consensus knowledge.
  - BbzzbB 4y ago
    Saying insider trading of material non-public information is beneficial to free markets because it allows for a handful of connected individuals to front-run the market on non-public news is certainly a take. A really weird one, but a take nonetheless.
    - prvit 4y ago
      Why do you think it’s better that some hedge fund with specialist algorithms and infrastructure front-runs the market instead? It’s a handful of connected individuals in either case.
      - BbzzbB 4y ago

Insider trading results in more accurate pricing.

by prvit 4y ago

Insider trading results in more accurate pricing.

last_responder 4y ago

How does that work? Just saying something does not make it true.

prvit 4y ago
Price discovery is a major function of markets, insider trading adds more information and benefits all parties by allowing for more accurate pricing of whatever is being traded.
- toomuchtodo 4y ago
  US regulators are targeting fairness vs most efficient markets and price discovery.
  - prvit 4y ago
    Indeed, but their definition of “fairness” is rather dishonest. This doesn’t benefit 99% of market participants. US regulators would rather specialist companies with the fastest algorithms and connections to process corporate announcements reap all the benefits.
- renewiltord 4y ago
  Yeah, but that's not the only function. Which is why US exchanges have the notion of the Intermarket Sweep Order, etc.
  - prvit 4y ago
    ISOs directly aid price discovery, no?
    - renewiltord 4y ago
      Don't they impede price discovery by increasing the cost to move the price?
      - prvit 4y ago
        If you focus only on price discovery happening in a specific market center, sure. However, because it’s 2022 and we have the internet and all I’m not sure it really makes sense to focus on specific market centers instead of the market as a whole. Of course HFT makes this far more complicated so it’s difficult to come up with a clear answer in either direction. The Clean sweep study (https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff2975/chakravarty2012.pdf?download=true https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff297...) seems to suggest that ISOs have a greater impact on prices and add more information to markets than “regular” orders.
        renewiltord 4y ago
        Interesting. Thank you.
- ajsharp 4y ago
  Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not real buy-side demand pricing information because the insider (typically) intends to sell as soon as the price pops, once more market participants have been pulled into the trade because it's going up -- key knowledge the insider knew the market did not. Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule.
  - prvit 4y ago
    > Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not illegal because insiders possess knowledge the rest of the market does not. Insider trading is illegal because it creates a false perception of unfairness among less sophisticated market participants. (There are other decent reasons too, Matt Levine has written about this extensively too. Yours isn’t one of them) > Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule. This only makes sense in a context where all parties have access to equal resources, but that’s not true. A hedge fund paying visa for transaction flow, or flying spy planes above a factory to track production will have more information than other participants.
    - ajsharp 4y ago
      You're so far down the contrarian rabbit hole on this take, you're arguing the nuances of why, precisely, insider trading is illegal. It doesn't really matter why, it is, and for good reasons (agree with or don't, whatever). This ain't the hill.
      - prvit 4y ago
        It’s not a “contrarian rabbit hole”. Whether or not insider trading should be illegal is a hotly contested topic among economists. >It doesn't really matter why, it is, and for good reasons Would you like to share the good reasons why it doesn’t matter?
- notahacker 4y ago
  Insider trading can lead to more accurate pricing at a particular time by releasing information earlier than it otherwise would have been released (albeit selectively in a way designed to maximise harm to people on the other side of the trade the insiders usually have some sort of fiduciary duty to). It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. Suffice to say the dominant trend in crypto markets is not rapid convergence on a relatively stable price...
  - prvit 4y ago
    > (albeit selectively in a way designed to maximise harm to people the insiders usually have some sort of fiduciary duty to). That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. > It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. In the US that’s just called “wire fraud” and not “insider trading”.
    - notahacker 4y ago
      > That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. Of course there is. When prices go up, insiders profit at the expense of shareholders who sell to them. In the absence of insider traders, non-insider shareholders collectively achieve better returns; ergo they are harmed by the presence of insider trading on positive or negative information. (The only time it wouldn't be the case is if the prices move in the opposite direction to the one the insiders are expecting due to some other unanticipated development which is far more significant than their information advantage) > In the US that’s just called “wire fraud” and not “insider trading”. Much easier to prove the insider trading in the run up to a profit warning than prove an entity was intentionally mismanaged to create that opportunity and its earlier predictions of success were fraudulent and not just incorrect.
- stjohnswarts 4y ago
  If you want insider trading then take the company private and do all the trading you want. Public companies and investors should be able to count on insider trading being illegal. The punishments need to much more severe and extremely hard to get out of in court.

arcticbull 4y ago

Pricing is equally accurate, the difference is latency. That reduction in latency though comes at a high cost.

prvit 4y ago
It’s not equally accurate. Markets are supposed to price in the future. “Latency” just means that the future isn’t priced in, which results in less accurate pricing.
- arcticbull 4y ago
  The price reflects the consensus knowledge of participants. Insiders cannot participate. Therefore, the price is accurate. Addition of new knowledge will happen in time, therefore I maintain this is a latency issue not an accuracy issue. The markets don't price in the future, they guess it.
  - prvit 4y ago
    Latency is inaccuracy, just on a different axis of the graph. Insider trading adds to consensus knowledge.
- BbzzbB 4y ago
  Saying insider trading of material non-public information is beneficial to free markets because it allows for a handful of connected individuals to front-run the market on non-public news is certainly a take. A really weird one, but a take nonetheless.
  - prvit 4y ago
    Why do you think it’s better that some hedge fund with specialist algorithms and infrastructure front-runs the market instead? It’s a handful of connected individuals in either case.
    - BbzzbB 4y ago