The following essay is based on testimony the author delivered to the U.S. Senate Judiciary Committee on September 26, 2006.
The academic debate about the desirability of prohibiting insider trading is longstanding and as yet resolved. The legal academic literature on insider trading suffers from a few significant shortcomings. In brief, legal scholars who believe that insider trading is efficient and thus ought not to be prohibited maintain that insider trading increases managers' (and other insiders') incentives to behave in the interest of stockholders; makes stock prices more informationally efficient (that is, more accurate); and/or does not decrease the liquidity of the stock market. In contrast, legal scholars who believe that insider trading is inefficient and thus ought to be prohibited argue that insider trading reduces managers' (and other insiders') incentives to behave in the interest of stockholders; makes stock prices less informationally efficient (that is, less accurate); and/or decreases sotck market liquidity.
Laura N. Beny,
Insider Trading Rules Can Affect Attractiveness of Country's Stock Markets,
Law Quadrangle (formerly Law Quad Notes)
Available at: https://repository.law.umich.edu/lqnotes/vol50/iss1/12