Insider Trading Controversies: A Literature Review
Hong Kong University of Science & Technology - HKUST School of Business and Management
August 22, 2014
Forthcoming, Annual Review of Financial Economics, vol 6, December 2014
Kelley School of Business Research Paper No. 2014-29
Using the artifice of a hypothetical trial, this article presents the cases for and against insider trading. Both sides in the trial produce as evidence the salient points made in more than 100 years of literature on insider trading. The initial days of the trial focus on the issues raised in the law literature such as fiduciary responsibility, the misappropriation theory and the fairness and integrity of markets; however, the trial soon transfers focus to issues such as Pareto optimality, efficient contracting, market efficiency, and predictability raised in the financial economics literature. Open issues are then brought up. A jury finally hands down its verdict.
Number of Pages in PDF File: 34
Keywords: Insider Trading, Securities Law, Enforcement, Efficient Markets, Cost of Capital, Liquidity
JEL Classification: G14, G18, G38, K22
Date posted: October 16, 2013 ; Last revised: August 26, 2014
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