Insider Trading And Stock Market

Decent Essays
Furthermore, many economists believe that insider trading leads to instability in the market. Economists Julan Du and Shang-Jin Wei suggest that when the market is at higher volatility, insider trading has mainly a part to play in this instability of the market. However, these two economists also believe that many other factors play into the market efficiency and insider trading. Some of these factors include: financial and economic policies, and the maturity of the stock market at the current time that insider trading occurs. There are many people who believe that insider-trading effects market efficiency in a negative manner. However, there are plenty of studies that have been conducted that show otherwise. These studies were done in…show more content…
When a company issues new shares to an investor, the capitals from these shares are spread to that company. However, the problem that is seen is: product market flaws tend to create a monopoly, instead of making the market even with investors. According to Joel Peress “when trades are initiated by insiders, and the information content of stock prices is higher for firms with more market power” (pg.34). This is one of the main reasons that insider trading is in fact illegal in the United States of America. When insider trading occurs, it only benefits bigger companies, thus creating very limited opportunities for smaller companies to expand. There was a study done by Stephanie Roddenberry Dr. Frank Bacon: a student and a professor in accounting at Longwood University. They took a look at weather insiders buy low and sell high. They studied that when insiders and investors acted on non-public information, earned above normal returns, than those investors who were not able to earn above the normal risk of acting on the public announcement. In conclusion, there are many opinions on insider trading affecting the market efficiency, but there has been determined that when the there is less regulation in the market, it seems more often that it affects the equity markets. As a result, when insider trading is being regulated by an agency. There are many agencies that enforce rules on insider trading. In addition, there is one main agency that regulates the
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