There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
--
[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.
The stock market would not be noticeably less liquid if people had to hold stocks for 24 hours, but volume would drop like a rock.
This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.
The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.
Prediction markets are doing a bit of that. Some won't take bets on an assassination.
If they get assassinated, those markets will resolve to yes. At least the rules don't specifically exclude that.