Information Asymmetry and the Protection of Ordinary Investors

Abstract

To some, the reductions in information asymmetry provided by the main
securities-specific disclosure, fraud, and insider-trading laws help ordinary
investors in meaningful ways. To others, whatever their larger social value,
such reductions do little, if anything for these investors. For decades, these
two sides of this investor-protection divide have mostly talked past each other.

This Article builds on economic theory to reveal something striking: The
reductions in information asymmetry provided by the core securities laws
likely impose a long-overlooked cost on buy-and-hold ordinary investors.
More specifically, I explain why there is much reason to believe that the
reductions take away investment return from these investors, while
providing them with only limited benefits. Thus, the article presents a
serious challenge to conventional wisdom on information asymmetry and
the protection of ordinary investors, and argues in favor of a shift in
investor-protection efforts away from the main securities laws and to areas
of regulation that have received relatively little attention to date.

Keywords: Securities Regulation, Capital Markets Regulation