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re: Insider Trading: Is it really that bad?
Posted on 10/22/10 at 11:17 am to TigerBoy85
Posted on 10/22/10 at 11:17 am to TigerBoy85
In theory it harms the market because outsiders are always at a disadvantage and this prevents the market from "clearing", at least for a thinly-traded security.
In practice, I'm not so sure. Here are counterexamples:
1) There are plenty of countries that allow practices we would call "insider trading". Remember this next time you hear about how foreign CEO's don't make as much money ...
2) US Senators and Congressmen are exempt from insider trading regulations even though they pass laws affecting companies. Several studies have shown they beat the market pretty handily, too.
3) Every time a private business or real estate is sold, it is sold by an insider. And yet the trades take place.
So no, I don't think it's that bad.
In practice, I'm not so sure. Here are counterexamples:
1) There are plenty of countries that allow practices we would call "insider trading". Remember this next time you hear about how foreign CEO's don't make as much money ...
2) US Senators and Congressmen are exempt from insider trading regulations even though they pass laws affecting companies. Several studies have shown they beat the market pretty handily, too.
3) Every time a private business or real estate is sold, it is sold by an insider. And yet the trades take place.
So no, I don't think it's that bad.
2
Posted on 10/25/10 at 11:53 am to foshizzle
quote:
3) Every time a private business or real estate is sold, it is sold by an insider. And yet the trades take place.
How often is this done without the buyer being able to look at the "inside"?
Posted on 10/25/10 at 12:14 pm to foshizzle
quote:From what I've read this is technically not accurate. It depends on how you define "inside" information.
2) US Senators and Congressmen are exempt from insider trading regulations even though they pass laws affecting companies.
Congressmen and their staffers know what is in a appropriation bill, for example, which will affect a company's stock. But that information is not "inside information" from inside the company. The information is supposedly "public" since appropriation hearings are public.
If congressmen receive information from a corporate insider and they buy or sell based on that inside information, the congressman can be prosecuted under insider trading laws just like anyone else.
But I agree with your point, that congress has an advantage over the average investor just because of the information that person receives just from being a congressman.
My solution would be congressman must publicly announce at least 5 business days in advance what stocks he is going to buy or sell before he actually buys or sells it. The announcement should be published online.
I predict we won't see a law requiring that....
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