One thing that I find really weird is that insider trading is virtually impossible to prevent.
Knowing this, what should we do? Create a system where insider trading has negligible effects? Or try to attack it as much as possible?
Knowing this, what should we do? Create a system where insider trading has negligible effects? Or try to attack it as much as possible?
The government makes the laws intentionally vague so it’s really hard to tell.
Not really. For example: if I am a terminal cancer patient that wants liquidity now to do the things I want to do before I die, and you are a pension fund that only really cares about the return thirty years from now, I can trade the stock that I have to you in exchange for money I can spend right now at a price both of us agree on and (this is the important bit) BOTH of us gain from the transaction.
But you’re right, if someone wasn’t going to buy a stock unless they had insider knowledge, they are no worse off since they never would have bought it anyways.
If insider information would lead you to sell ahead of bad info, it’s really losing out on that advantage, since you would have held onto it regardless.
The idea of making it legal is that the price would more accurately reflect all info (public and insider).
Unless you’re saying that insiders actually are worse than random in beating the market before trading costs, it’s highly unlikely. After all, when not then just trade against the information and make money?
Anyways the above Levine post talks about this issue. The dollar weighted win-rate of the Edgar hackers was 77%, which is very very high. This would indicate that inside information is incredibly valuable and that those with access to it have substantial alpha over the market.