Skip to main content

Insider Trading causing Asymmetrical Markets

The resource being linked in this topic is about insider trading. This relates to the asymmetric markets we talked about in class. With the asymmetric market, there is a clear advantage to having some information that not everyone has. This can work in some markets but there is always going to be one person in the market that has an advantage in this situation.

The article mentions some of the negatives to insider trading. The article states that the integrity of the market is compromised when a few people know of nonpublic information. This is because they can take a position that is going to put them ahead in the market but takes away from others invested in the market. One example given is when Martha Stewart was arrested in 2003 for insider trading. She was given information that the CEO of a company had sold all of his shares and she followed suit selling all of her shares before the company took a 16% drop after the news broke of the FDA rejecting a drug. This put Martha at an unfair advantage and the people who bought the stocks from her may not have bought them if they had the same information that the CEO was selling all of his shares. Because of these practices, the Securities and Exchange Commission cracked down on such activity. This is because while it puts certain people at an advantage to save their money it puts more people at risk by some people having private information.


Leave a Reply

Blogging Calendar

November 2018