It has been argued by some, including Milton Friedman, that insider trading of publicly traded stocks...

It has been argued by some, including Milton Friedman, that insider trading of publicly traded stocks should be allowed. The rationale is that trading stock with inside information can actually lead to trading based on more timely, accurate information about the financial health of companies. (Links to an external site.)

Those with inside information, in other words, would move the market toward a more efficient allocation of capital, more quickly, because insiders would know when to buy and sell at a price that reflects the true value of the stock based on a company's performance.

In an short essay develop an criticism of this efficiency-based defense of insider trading; specifically, what reasons are there to reject this line of thinking?

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Expert Solution

Insider trading is the philosophy of making the rich richer and poor poorer, because all those persons who are associated with the management of the company are always trying to maximize upon their own interest and they will always be trading on those insider information and there will be manipulation in the prices of shares on the cost of the retailers money and retailer are always going to lose because retailer and does not have any kind of insider information in relation to the company.

Insider trading will mean that there is lack of efficiency on the part of markets because the organisational people will always be inflating the share price and they will be trying to to do it on exploitation of the retail money and poor investors, who does not know about the insider information of the company so there will always be an additional advantage for these insiders and they will be trying to manipulate the prices of their stock and it will mean that there would be a lack of experience in the market and it would not be leading to Efficient market at all and hence I am against this allowance of publicly trading stocks insider trading.

jeff jeffy answered 2 years ago

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