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Advantages And Disadvantages Of Insider Trading

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Literature Review (3)
According to (McGee, 1992), he stated that making insider trading legal would make it clearer for all individual investors to know where they are investing their money. But keeping it banned will create illusion of fairness which keeps everyone worse off. Insider trading is actually an active good. Insider trading bans not actually stamp out insider trading. Insider trading remains and may actually be growing, which puts law-abiding investors at a disadvantage.
The author has taken the case example of Enron, whereby if there was existence of insider trading than late Enron CEO Ken Lay might have been exposed his sundry frauds earlier. Markets work best when goods are priced well. Which simply means that a firms stock price should reflect the firms both strengths and weakness. Whereby is a firm is involved in giant Enron- style scam, the price should be correspondingly low. Its stock price did not reflect …show more content…

Fair only exists in fairy tales. The markets are inherently unbalanced. There are participants that have faster computers, better alogrthms and smarter staffs .There are those that transact a lot of business with certain investment banks who are going to get more favorable allocations in IPOs and follow-on offerings because they are better clients. So somehow there will be other participants that will be having a disadvantage.
Insider trading does not harm in the long term investment, the main idea is that insider trading contributed importantly to the efficiency of stock market pricing.
By and large the idea that there is no direct harm from the practice has held up very well, especially the point that there is no real damage caused to an investor who engages anonymously on an exchange in a trade with an insider on the other side of the transaction. The author Mr. Doug claimed that , essentially the biggest and best information gathering machine in the world is by legalizing insider

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