Insider Trading = Good Thing?
October 24, 2009
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"Time to stop telling horror stories. Federal agents are wasting their time slapping handcuffs on hedge fund traders like Raj Rajaratnam, the financier charged last week with trading on nonpublic information involving IBM, Google and other big companies. The reassuring truth: Insider trading is impossible to police and helpful to markets and investors. Parsing the difference between legal and illegal insider trading is futile—and a disservice to all investors. Far from being so injurious to the economy that its practice must be criminalized, insiders buying and selling stocks based on their knowledge play a critical role in keeping asset prices honest—in keeping prices from lying to the public about corporate realities." (Excerpt from Op-Ed Piece on WSJ.com, by Donald J. Boudreaux)
The basic premise of this piece is that allowing insider trading makes markets more efficient, and that the amount of resources that go into policing insider trading is misguided and a waste. Also, companies sometimes have incentives from policing it themselves. Do you agree?
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