Why is insider trading law ineffective? Three antitrust suggestions. Issue 4 (3rd October 2016)

• Record Type: Journal Article
• Authors: Dalko, Viktoria; Wang, Michael H.
• Is Part Of: Studies in economics and finance. Volume 33:Issue 4(2016)
• Page Start: 704
• Page End: 715
• Publication Date: 2016-10-03
• Subjects: Insider trading -- Antitrust -- Corporate insiders -- Earnings manipulation -- Informational monopoly power -- Insider trading law; Economics -- Periodicals; Finance -- Periodicals; 330
• DOI: 10.1108/SEF-03-2016-0074
• Languages: English
• ISSNs: 1086-7376

Abstract

Abstract : Purpose: The purpose of this paper is to uncover the essence of insider trading, explain why insider trading law is ineffective and provide implications of the effectiveness of the law. Design/methodology/approach: This conceptual paper offers three propositions. The first two are based on a literature review of 62 articles in empirical research to develop an understanding of the essence of insider trading and identify the areas in which insider trading is ineffective. This analysis is used in the third proposition to provide a direction in suggesting effective measures to improve insider trading law. Findings: The essence of insider trading is that corporate insiders exercise informational monopoly power over their trades. This understanding explains why insider trading law is ineffective because it has not taken away the monopoly power that corporate insiders possess and exercise. This understanding also leads to three antitrust suggestions aimed at improving insider trading law. Practical implications: The findings may provide assistance to the lawmakers and regulators to make insider trading law more effective and enforcement more simplified. Originality/value: This paper is of value to other researchers attempting to understand the essence of insider trading and to policymakers concerned about the existence of monopolistic behavior in the equity market and income inequality due to corporate insiders' trading profit.