Insider Trading In A Rational Expectations Economy
2016; American Economic Association; Volume: 80; Issue: 5 Linguagem: Inglês
ISSN
1944-7981
Autores Tópico(s)Corporate Finance and Governance
Resumois often argued that efficiency considerations require society to freely permit insider trading. In this article, an opposing efficiency argument is formalized. The model incorporates an investment stage followed by a trading stage. If expect insiders to take advantage of them in trading, outsiders will reduce their investment. The insiders' loss from this diminished investor confidence may more than offset their trading gains. Consequently, a prohibition on insider trading may effect a Pareto improvement. Insiders are made better off if they can precommit not to trade on their privileged information; govemment regulation accomplishes exactly this. (JEL 022, 026, 313) The traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets. Indeed, President Franklin D. Roosevelt justified the first major U.S. securities legislation by saying: It should give impetus to honest dealing in securities and thereby bring back public confidence.' Similar language is still invoked half a century later, in connection with enforcement efforts against insider trading and in proposals for tightened stock
Referência(s)