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- Legislators causing market moves in order to capitalize on them...but that's legal
- Brokers using their clients as exit liquidity
I imagine there are more cases, but generally they'd fall into these sorts of breeches of other duties.
If insider trading is common, why should anyone without insider knowledge participate? Without outside participation, how does the market have any volume?
It seems to me that the only kind of market which could get any sort of volume is if you have insiders who disagree.
why should anyone without insider knowledge participate?
Irrational confidence?
It seems to me that the only kind of market which could get any sort of volume is if you have insiders who disagree.
"Insider" isn't really a Boolean category. There are degrees of insiderness and you don't know who else is in the market or how aligned their knowledge is.
But if the participants are irrationally confident, it conflicts with the notion that the signal is informative.
Ultimately, I'm not sure you can get around the tension between signal accuracy and market participation..... right? Unless I'm missing something... or unless an "average of overconfident insiders" is actually informative. But even so, you'd have to posit some behavioral rationale for overconfidence.
Is there a particular direction that the overconfident ought to be wrong in?
If so, that would be something to trade on. If not, it's not a problem, right?
Maybe all the overconfident are offering is incentive for insiders to participate.
Another aspect is dynamics. Perhaps when the market is created, there is no relevant insider info so all the trading is based on common knowledge. Once an insider enters, it's almost as if the market is "resolving", in one direction or another, just not with perfect certainty yet.
That's the goal, isn't it?
Preach, brother!
Maybe the question is: are there any cases where insider information being leaked is a generally bad thing?
It might be bad for some individuals, but I'm curious under what circumstances such leaks make all of us worse off.