[0] http://www.wsj.com/articles/SB100014240527023042799045795161...
[0] http://www.nytimes.com/2013/07/21/business/a-shuffle-of-alum... [1] http://money.cnn.com/2014/11/20/investing/goldman-commodity-... etc...
Also, it makes no sense to base judgement of the law on the impossibly high standard of 100% compliance. Indeed, any law that does achieve a compliance level that approaches 100% will almost certainly be accompanied by an enforcement regime so terrifyingly intrusive that it's hard to imagine a threat to civil society that could be greater.
What does make sense is widespread use of the kind of statistical analysis that makes patterns of insider trading very hard to conceal, along with enforcement that includes far-reaching chains of disgorgement in cases where convictions do stick.
Basically, if you're you're foolish enough to do business with a fund that is producing returns that are inexplicable absent reliance on insider trading, you could find yourself loosing large sums to the government if and when the fund's operators are taken down.
There are fundamental things (like limited number of sufficiently high-level insiders) restricting competition in conventional insider trading to minimize the rent charged from insider "research".
Economic theory does lend some support for the idea that markets will perform better when the public is confident enough to participate in them broadly, and broad participation should drive valuations higher. (The latter is a dubious benefit.) But there is likewise plenty of theoretical justification for the harm done to markets by insider-trading laws. Markets are basically mechanisms for aggregating and analyzing information, and insider trading laws restrict the supply of basic facts. Mispricing ensues.
There are other justifications for banning insider trading, albeit all rationalizations post facto, as far as the legal history goes. Allowing a manager to trade her company's shares (particularly to short them) can put her incentives out of step with those of the company's other shareholders. But the managerial misbehavior that could provoke is already illegal under various other regimes. And the principal-agent problem is no argument at all for setting up a system like we have, one which bans trading by knowledgeable people who are in no position to influence corporate decisions.
But the economics are almost beside the point. The promise made by insider trading laws is that any Joe Schmoe can trade on the same footing as sophisticated professional investors, and that promise is a farce. It's a farce not only because the incentives will always drive some people to break insider trading laws, but because ordinary people do not have ready access to all of the legally "public" facts anyway; many of them are locked up in obscure or expensive databases. And if Joe Schmoe did have all the public facts, he would still lack the other big piece of the informational puzzle, which is the ability to interpret the facts properly. That more than anything requires real expertise.
In my opinion, the public-confidence angle is the strongest component of the case for outlawing insider trading, but I think it's a rather weak case in the end. The perverse truth is that if insider trading laws inspire the public to think they can play the markets on equal footing with sophisticated investors, then insider trading laws have succeeded in installing a false confidence; they have hoodwinked the public.
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0. This has remained a main justification (at least rhetorically) for maintaining and strengthening insider trader laws over the past eight decades. For example, an act amending the rules in 1984 has this preamble: "Insider trading threatens ... markets by undermining the public’s expectations of honest and fair securities markets where all participants play by the same rules."
Unlike the case where a very small group of investors privy to truly secret information can collude to keep the secret information out of the stock price, to their eventual gain.
The promise made by insider trading laws is that any Joe Schmoe can trade on the same footing as sophisticated professional investors, and that promise is a farce.
If you want to see how good a trader someone is, look at how much they lose in a bad market rather than how much they make in a good market.
As they are not part of the portfolio they can avoid reporting on the performance, so you don't necessarily get to see the full picture of how their decisions affect their investors.
Random selection tends to bias towards smallcap/microcap, as the sheer quantity of those companies is higher.
If there weren't laws against people taking their employer's or contractee's stuff, employers would be hire hit squads to prevent it from happening. Despite vision of libertarian utopias, that wouldn't be an improvement.
You can't have it both ways, you either allow people to trade on private information (thus indirectly making the information public by moving the stock price) or you don't.
In big business, quarterly is often as close to "frequent" as one can get. Contracts take weeks if not months to negotiate, net 60 or 90 payment terms, hold backs, terms on goods in transit, etc. For some complex businesses, teams work on nothing but figuring out quarterly filings.
And then: if I am a shareholder, and I own part of the company, why can't I have access to the internal not-yet-audited general ledger status? It's my company, right? It should be feasible to give me access to a secure site where I can get the information...
I believe the real reasons, rather than technical infeasibility, are mainly two:
- Extreme "corporate governance": If shareholders can react on every minute transaction that you do, and they effectively micromanage the company, there is still more incentive for short-term thinking (a problem that a lot of listed companies are already very familiar with).
- Strategy: If competitors can buy one of your shares, they would get access to all your information. You can still do the same, though: on public companies, information is either public, or private. But who is going to start? Who is going to rush to be open to the competitor?
Check out: http://www.itg.com/intelligence/itg-investment-research/cove...
Also check out this article from the WSJ from June 2010 on Majestic Research: http://blogs.wsj.com/economics/2010/06/30/using-starbucks-du...
Using Starbucks, Dunkin’ Donuts to Track Economy As economists look for clues on the direction of consumer spending, they may want to look into how much Americans are willing to spend on their coffee.
Consumers have been more willing to spend since the lows of the recession, but recent declines in retail sales and confidence have sparked worries over whether spending can continue to grow in the second half of the year.
Enter the coffee indicator. A “tell-tale sign of how consumers feel about employment, income and the future is where they buy their coffee and whether they step up for the more expensive concoction,” wrote Majestic Research economist Steve Blitz in a recent research note.
Majestic Research tracks anonymous credit-card data, and can see how much consumers spend by category and store. Blitz broke out the average dollar transactions at Starbucks and Dunkin’ Donuts. The data show that during the worst of the recession consumers spent less at the two coffee outlets, but as the employment picture started to improve people were willing to spend more per transaction.
AFP/Getty Images Starbucks may hold a key to consumer spending. The trend reversed at the beginning of April when transaction size turned down. To be sure, much of that change is likely seasonal. Transaction size at Starbucks, especially, takes a big spike around the holidays as shoppers buy coffee baskets and mugs for those caffeine addicts on their lists. In the last two years, it has bounced back a bit through the late winter, turning down in April and then moving back up in the late summer/early fall.
So far, this year’s transactions at Starbucks and Dunkin’ Donuts is following the pattern. If that bounce back materializes in the late summer, it could indicate that consumers are still willing to open their wallets. But if the average transaction size levels off or continues to decline, it could indicate a more thrifty consumer will dominate the second half of this year.
Seriously, why not?
It's possible that releasing hourly negates the effect of the information withholding; but I don't think it's necessarily a foregone conclusion. Instead of trading on longer term signals you're trading on "did company X sell as much this morning as expected" - which I'll grant you is a ludicrous thing to base that companies worth on. Perhaps it means people who have less effect on long-term signals get to take part in insider trading though - if you know there's a new advert or offer coming out you can predict a revenue shift.