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Making Insider Trading Legal

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Re: Making Insider Trading Legal

#151

Post by eru »

hristov wrote: post #141
nanis wrote: post #13

If everyone with inside information could trade on it without fearing the law, they would reveal the predicted effect of said information via movements in the price of the security. Therefore, free and legal insider trading would actually increase fairness in the market.

Nope, what would happen is that everyone without inside information would simply not trade in that security. You would not have a stock market because only people that know the company very well would dare buy stock in it. The cost of capital for companies would skyrocket and the US economy would tank. It is amusing to me how when all these amateur game theorists create these hypotheticals to prove that insider tradi…

Have you actually looked into stock markets (in other places and other times) that did not penalize trading on insider information?

Re: Making Insider Trading Legal

#152

Post by eru »

netheril96 wrote: post #147
jostmey wrote: post #133

Earlier quoted context omitted.

A perfect market, which is a stupid assumption, can indeed make profit. You are assuming that an economy is a zero sum game but it is not. Transactions are made because both parties come out ahead.

Economy is a zero sum game in a perfect market. It is not a zero sum game because markets are not perfect.

You don't believe different rates of economic growth are possible?

Re: Making Insider Trading Legal

#153

Post by hawkice »

netheril96 wrote: post #147
jostmey wrote: post #133

Earlier quoted context omitted.

A perfect market, which is a stupid assumption, can indeed make profit. You are assuming that an economy is a zero sum game but it is not. Transactions are made because both parties come out ahead.

Economy is a zero sum game in a perfect market. It is not a zero sum game because markets are not perfect.

This assumes (quite wrongly) that the same goods have the same utility across the population. It's similar to saying, in a perfectly efficient economy, there would be no trades. There are, because there is a benefit to that trade -- and there is no reason for that benefit to be evenly distributed.

Re: Making Insider Trading Legal

#154

Post by TeMPOraL »

hellbanner wrote: post #142
socialist_coder wrote: post #113

Earlier quoted context omitted.

In the US, most states have said that in a person to person sale, you are only committing a crime by buying stolen goods if you know the goods are stolen. But, there are separate laws for commercial entities who deal in second hand goods (like pawn shops). They must do proper due diligence when buying goods or they will be held accountable if those goods turn out to be stolen. I would assume that financial firms shou…

Is that "Thought Crime"? Criminality dependent on internal mental state!

That's actually the only reasonable definition of crime in a perfect world. It's because we don't live in a perfect world that we must focus on acts instead of intentions.

Re: Making Insider Trading Legal

#155

Post by GhotiFish »

eru wrote: post #151
hristov wrote: post #141

Earlier quoted context omitted.

Nope, what would happen is that everyone without inside information would simply not trade in that security. You would not have a stock market because only people that know the company very well would dare buy stock in it. The cost of capital for companies would skyrocket and the US economy would tank. It is amusing to me how when all these amateur game theorists create these hypotheticals to prove that insider tradi…

Have you actually looked into stock markets (in other places and other times) that did not penalize trading on insider information?

That question almost reads like a criticism, but I'd like to throw my hat into the ring here and say I'd like to know how markets cope in this situation. Do we have real world examples?

Re: Making Insider Trading Legal

#156

Post by mahyarm »

eru wrote: post #151
hristov wrote: post #141

Earlier quoted context omitted.

Nope, what would happen is that everyone without inside information would simply not trade in that security. You would not have a stock market because only people that know the company very well would dare buy stock in it. The cost of capital for companies would skyrocket and the US economy would tank. It is amusing to me how when all these amateur game theorists create these hypotheticals to prove that insider tradi…

Have you actually looked into stock markets (in other places and other times) that did not penalize trading on insider information?

What are your findings in looking at such markets?

Re: Making Insider Trading Legal

#157

Post by eru »

mahyarm wrote: post #156
eru wrote: post #151

Earlier quoted context omitted.

Have you actually looked into stock markets (in other places and other times) that did not penalize trading on insider information?

What are your findings in looking at such markets?

Sorry, too busy to do the research now. But people did trade before such regulations. And even today, eg Japan and Germany have notably lighter regulations on insider trading.

Re: Making Insider Trading Legal

#158

Post by eru »

GhotiFish wrote: post #155
eru wrote: post #151

Earlier quoted context omitted.

Have you actually looked into stock markets (in other places and other times) that did not penalize trading on insider information?

That question almost reads like a criticism, but I'd like to throw my hat into the ring here and say I'd like to know how markets cope in this situation. Do we have real world examples?

Lots of real world examples. Eg Japan and Germany still have lighter regulations on insider trading, and in the US and UK people used to trade before insider trading was banned.

Insider trading probably ought to be thought about when designing regulations---but I am not convinced either way that it should be banned.

Re: Making Insider Trading Legal

#159

Post by lambdapie »

ikeboy wrote: post #119
lambdapie wrote: post #76

Earlier quoted context omitted.

I didn't understand that article, probably because I'm unfamiliar with the author's other works. Is he proposing that a company be allowed to set rules regarding insider trading during the IPO? If so, I agree that in theory this would be efficient (or in the author's terminology, it would be acceptable from a consequentialist POV). But this is orthogonal to the issue. The people who want to ban insider trading would…

The argument is that instead of having the government decide what's best, the company should decide (and it doesn't need to be during the IPO). Then, the so-called "free market" will decide whether it's good or bad. If they decide it's bad for companies, then companies won't allow it, because it will hurt their stock price. If they decide it's good, then companies will allow it.

Why is free market in scare quotes? And why "so-called"?

Re: Making Insider Trading Legal

#160

Post by jeremysmyth »

hellbanner wrote: post #142
socialist_coder wrote: post #113

Earlier quoted context omitted.

In the US, most states have said that in a person to person sale, you are only committing a crime by buying stolen goods if you know the goods are stolen. But, there are separate laws for commercial entities who deal in second hand goods (like pawn shops). They must do proper due diligence when buying goods or they will be held accountable if those goods turn out to be stolen. I would assume that financial firms shou…

Is that "Thought Crime"? Criminality dependent on internal mental state!

https://en.wikipedia.org/wiki/Mens_rea

It's been an important part of law for a long time, although there's a tendency to explicitly avoid it in legislative efforts in the US since the '60s and the advent of MPC (https://en.wikipedia.org/wiki/Model_Penal_Code)

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