Local Ethics in a Global World

Abstract

Ethics, fairness, trust and freedom from corruption are all parts of social capital and social capital matters in financial markets because investors consider not only their tradeoff between risk and return based on available information but also their trust in the accuracy of information and the fairness of markets. Deficiencies in ethics and fairness mark all countries but such deficiencies are more pronounced in some countries than in others. Levels of corruptions are higher in some countries such as India, than in others, such as Australia. Rankings by perceptions of the fairness of insider trading generally follow rankings by corruption. A survey presented in this article shows that finance professionals and university students in India, Turkey, Tunisia and Italy perceive insider trading fairer than professionals and students in Australia, the Netherlands, the United States and Israel.

Why are levels of corruption higher in some countries than in others? Why is insider trading considered fairer in some countries than in others? And what can institutions, such as the CFA Institute, do to improve levels of ethics and fairness? These are the questions I try to answer in this article. I discuss four factors that affect social capital, culture, income, education and law enforcement.

Keywords: ethics, fairness, insider trading, international, behavioral finance

JEL Classification: G10, G14, G15, G18