The description of the second paper’s conclusions don’t seem particularly damning. Large active investors have a huge incentive to acquire relevant information prior to big announcements. That’s why they have expensive research departments.
EDIT: Oops, missed the double negative.
I used to find, collect and analyze supply chain data to sell exceptionally accurate earnings forecasts to a variety of funds. In every case I can recall, the analysts at these funds were extremely careful to make sure the data was legally sourced. In one particular case, a competing firm became a bit overeager and used data that broke the terms of service of a company’s website - in doing so, they threw each fund they sold the forecast to into a compliance-mandated trading lockdown on corresponding equities and derivative securities once they disclosed to the funds that they overstepped.
People have a lot of misconceived ideas about what constitutes insider trading. Information asymmetry does not constitute insider trading. In fact, it would be virtually impossible to yield a positive return in trading were it not for information asymmetry. This is fundamentally why research departments exist.
Worked for a marketing department once. My boss had a monthly report on consumer product orders and sales. Cost $500,000 a year. That would be exactly the sort of thing an investment manager might have access too that a small time investor does not.
I'm convinced that some amount of insider trading is going on. Just the other day I was in a sauna at a gym in midtown and walked in on some bankers discussing a deal they were working on and literally whether they ought to illegal trade on their insider knowledge. They kept on talking about it for a time while I was with them, and then said of me, "Better hope this guy's not from the SEC!" It was pretty blatant.
Now these kids were idiots, so maybe they wouldn't even be able to make a profit with insider knowledge. But if they're talking about it, I'm sure non-zero numbers of people are doing it.
If you work at Wal-Mart, know the financials of store sales before it is released, and trade off that, you can go to jail.
But you don't work at Wal-Mart, buy satellite imagery and count cars in the parking lots to estimate sales, and trade off that, then it's totally cool.
It's not so much that the information is non-public that makes it a crime - it's the insiderness - abusing a position of investor's trust.
Really what people should remember is that insider trading laws aren’t to protect the rest of the market. They are to protect the existing investors. Illegal insider trading happens when you have fiduciary duty to someone else (other shareholders) and you steal from them.