Insider Trading: Does It Help or Hamper the Markets?

Alexandre Padilla looks at whether insider trading is good or bad. He defines insider trading as the use of nonpublic information in a securities transaction and goes on to explain that even when secret information is not disclosed, the actions of investors who have more knowledge about a company signal other participants in the market to either buy or sell stock in that company.

Through his research, Padilla is trying to determine whether allowing insider trading would help or hamper free markets. He draws a parallel between Hayek’s view of the importance of local knowledge in the allocation of scarce resources and the impact on capital markets of investors acting with insider knowledge.

Finally, Padilla discusses insider trading regulation and the idea that stock markets should be a level playing field where anyone can get rich. He explains that this egalitarian view is not realistic because not all investors will have the same knowledge or the time required to make good investments.