Ma and Sun on Insider Trading Ethics

Ma and Sun have recently argued that some forms of insider trading are ethically acceptable. We argue that the authors fail to prove three key premises of their argument, which is therefore unsound.     

Applying Ethics to Insider Trading

Insider trading has received a bad name in recent decades. The popular press makes it sound like an evil practice where those who engage in it are totally devoid of ethical principles. Yet not all insider trading is unethical and some studies have concluded that certain kinds of insider trading are actually beneficial to the greater investment community. Some scholars in philosophy, law and economics have disputed whether insider trading should be punished at all while others assert that it should be illegal in all cases. This paper explores the nature of insider trading and analyzes the issues to determine the positive and negative aspects of insider trading, and how policy should be changed. The best hope would be for studies to be made that isolate the individuals or groups who are fraudulently harmed by insider trading. If any such groups exist, then clearly worded legislation could be passed to prevent any fraud from being committed against these individuals and groups, while allowing non-fraudulent transactions to be completed without fear of prosecution. Until it can be clearly determined that someone is fraudulently harmed by insider trading, there should be no law or regulation restricting the practice, since such restrictions violate individual rights and will likely have a negative market reaction. Robert W. McGee is a professor at the Andreas School of Business, Barry University in Miami, Florida, USA. He has published more than 50 books and more than 400 scholarly papers in the fields of accounting, taxation, economics, law, philosophy and ethics. He holds doctorates in several fields, including accounting, economics, law and philosophy. He is an attorney and a certified public accountant (CPA).     

Ethical Reasoning and the Use of Insider Information in Stock Trading

The cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior. In this study, we trained a sample of accounting and finance students in performing competitive stock trading in our state-of-the-art trading room. The subjects then performed trading of stocks under two experimental conditions: insider information, and no-insider information where significant performance-based financial awards were at stake. We also administered the Defining Issues Test (DIT). Ethical behavior, as the dependent variable was measured in a binary scale: whether the subjects used insider information for trading of stocks or not. Ethical reasoning as measured by the DIT P-score indicated statistically significant effect on ethical behavior. The results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading.     

内部控制与内部人亲属卖出股票交易行为的市场反应--来自深市上市公司的经验证据

本文运用事件研究法分析了市场能否对内部人亲属卖出股票交易行为做出显著的反应,并探求内部控制在其中的影响。研究发现：内部人亲属在卖出股票交易中表现出了准确的市场择机能力,市场对此有着显著的负面反应;与内部控制质量高的上市公司相比,内部控制质量低的上市公司的内部人亲属能够更为成功地选择在股价大幅度上升的恰当时点卖出股票,市场对此的反应也更加强烈。     

The Issue of Insider Trading in Law and Economics: Lessons for Emerging Financial Markets in the World

Growth of the private sector and privatization of state companies around the world have led to the emergence of various stock markets, some of which are depicted by insider trading. Law literature uses the arguments of unfairness, breach of fiduciary rights and damage to others to define and rule against insider trading. Economic literature can be used to interpret insider trading from other perspectives. This study argues that the question of insider trading in developing markets can be resolved by the extent stock markets generate externalities and are public goods. It advocates structural changes in the developing markets and examines the conditions under which the Coase Theorem would work.     

论“市场欺诈理论”与证券内幕交易民事责任因果关系的确立及借鉴

目前内幕交易民事责任因果关系问题是我国立法中的一个空白点。理论界对此问题做过大量探讨,但涉及内幕交易因果关系的理论基础和发展趋势及我国应采用的基本观点还缺乏必要的认识,为此从我国相关立法实践出发,借鉴"市场欺诈理论"和西方国家立法、司法实践,对完善我国证券内幕交易民事责任的因果关系问题提出建设性意见。     

An Experiment Testing the Determinants of Non-Compliance with Insider Trading Laws

Recent stories of corporate insiders avoiding losses and, in some cases, generating enormous personal profits as their companies crumbled have led investors to question the integrity of American business and the fairness of the United States stock markets. The SEC tries to ensure the fairness of the stock markets by making and enforcing laws against unfair practices such as insider trading. In the United States, when insiders trade stock based on non-public information, they have broken the law and betrayed the trust that has been placed in them.This study used student subjects to test the relationship between the likelihood of trading based on insider information and subjective probabilities of deterrents and motivations for insider trading. Expected gain, guilt, cynicism, and fairness of laws were the determinants that had a significant relationship with the intent to trade based on insider information. This study also found support for prospect theory with regard to insider trading. The results indicate that subjects are more likely to trade based on insider information to avoid a loss than to achieve an abnormal gain. The study also finds evidence of social desirability response bias.Additional findings of the study were that subjects did not view the determinants for themselves in a manner consistent with how they viewed those same deterrents and motivations for other people. Also, a test of the effects of gender found that certainty and social stigma were significantly higher for female respondents than for male respondents.     

信息不对称条件下的知情交易与市场操纵研究

信息不对称性是证券市场知情交易和市场操纵行为产生的必要前提,知情交易虽然可能促进真实价格的发现和市场效率的提高,但更有可能引发策略性的市场操纵行为。而在市场操纵策略中必然隐含着知情交易行为。市场操纵行为是不利于证券市场的规范发展和中小投资者利益保护的。解决市场操纵的主要办法只能是信息披露制度的完善和规范。     

国有企业公司化改制中的“内部人控制”问题与企业家成长

国有企业公司化改制中的“内部人控制”问题的实质是企业经理人员在激励和约束不对称的条件下,企业家的行为扭曲。他们将自己的创新能力从市场的开拓和产品的开发等创新活动中转移到寻找制度的漏洞,利用制度的不完全性和改革的不彻底性,侵占国有资产。因此,国企改制的目的,就是要矫正企业家行为,为企业家的成长设计出相应的激励和约束机制。其中财产抵押制、年薪制和股票期权制在整合国有资产与企业家利益中具有极为重要的作用。     

海洋产权交易中心的经济意义和建设构想

海洋产权交易中心的建设是我国蓝色经济区发展规划列明的重要举措,是海洋经济发展的重要制度支撑和制度创新。作为创新型的海洋产权专业交易平台,交易中心有利于推进海洋产权的界定和明晰、降低海洋产权交易成本以及满足海洋产权交易的特殊性要求。海洋产权交易中心的建设应突出产权市场的直接融资功能以及海洋产权交易的专业化、规范化和信息化原则,不断创新交易品种和交易模式,并由政府主导,企业投资,市场化运作。同时,交易中心的建设必须立足于经济发展的现实需要,从实践性和可操作性出发,采取先易后难、循序渐进的方式逐步展开。     

Trading Portfolios Electronically – An Experimental Approach

This paper focuses on a simple axiom – investors prefer to hold diversified combinations of assets. Arguing that pooling vehicles like mutual funds offer approximate solutions, we propose a portfolio trading mechanism that allows individuals to trade diverse combinations of assets through a single order. Given the complexity of the market mechanism, we construct a prototype of this trading system and test it through a series of laboratory experiments with student subjects. We address the quality of the price discovery process, quality of allocations, and efficiency of the market mechanism. Results from a set of laboratory experiments indicate that the performance of such systems is sensitive to design aspects as well as relative experience of participants.     

The Cultures of Insider Trading

Paul Bond is a lawyer who overheard two other lawyers at his office discussing the proposed purchase of a company by one of their clients. He proceeds to buy shares of this company. Would you rate Bond’s behavior completely fair, acceptable, unfair, or very unfair? I posed this vignette to samples of university students in China, Taiwan, and the U.S. Most students in the U.S. and Taiwan samples rated Bond’s behavior unfair or very unfair while most students in the China rated Bond’s behavior completely fair or acceptable. Perceptions of fairness are part of the culture of a country and culture affects business practices. I discuss culture, perceptions of fairness, and business practices in China, Taiwan, and the U.S.     

国内证券信用交易制度探讨

信用交易是国外证券市场普遍采用的交易方式之一,在我国《证券法》修订前,信用交易被视为“非法”行为,《证券法》修订后,信用交易被赋予了合法地位。本文认为,我国推出信用交易制度,将进一步完善证券市场运行机制,架起货币市场与资本市场之间的桥梁,有利于改变我国股票市场“资金市”的特点促进市场的平稳运行,有利于中央银行对股市进行宏观调控,并对证券发行提供有力支持,减轻扩容对二级市场的压力,对投资者、证券公司、商业银行、保险公司、社保基金等市场主体产生积极影响。文章提出,我国的信用交易制度应采取“准市场化”的信用交易模式,建立证券公司信用交易营业许可制度,界定融资、融券交易的证券,设立信用账户、分离账户和特别备忘账户,建立信用交易额度控制与调整制度,建立证券公司资券转融通机制,建立信用交易的多层次监管体系。     

Malliavin's Calculus in Insider Models: Additional Utility and Free Lunches

We consider simple models of financial markets with regular traders and insiders possessing some extra information hidden in a random variable that is accessible to the regular trader only at the end of the trading interval. The problems we focus on are the calculation of the additional utility of the insider and a study of his free lunch possibilities. The information drift—that is, the drift to eliminate in order to preserve the martingale property in the insider's filtration—turns out to be the crucial quantity needed to answer these questions. It is most elegantly described by the logarithmic Malliavin trace of the conditional laws of the insider information with respect to the filtration of the regular trader. Several examples are given to illustrate additional utility and free lunch possibilities. In particular, if the insider has advance knowledge of the maximal stock price process, given by a regular diffusion, arbitrage opportunities exist.     

The Challenges of Detection and Enforcement of Insider Trading

Taking advantage of the China’s recent anti-corruption campaign, we attempt to examine the effect of public governance on a firm’s incentive to commit fraud. Using enforcement actions data from the Chinese Securities Regulatory Commission (CSRC) from 2004 to 2014, we find that, due to enhanced public governance, firms are less likely to commit fraud in the post-campaign period than in the pre-campaign period. We further show that the effect of public governance is more evident in privately held listed firms, in firms with weak legal environment, and in firms in areas with poor local economies. In addition, we find that older CEOs respond less actively to the public governance caused by anti-corruption regulations. This paper offers clear policy implications for business ethics by indicating that public governance provides external monitoring of corporate decisions.     

Fallout from the Mutual Fund Trading Scandal

In September 2003, several prominent mutual fund companies came under investigation for illegal trading practices. Allegations suggested these funds allowed certain investors to profit from short-term trading schemes at the expense of other investors. Surprisingly, regulatory authorities have known for more than two decades of the potential for such abuses, yet have taken limited steps to correct the problem. We explore investor reaction to the scandal by measuring assets under management, stock returns, and performance. Mutual funds managed by investigated firms show a substantial decline in post-announcement assets under management. These firms also experienced significantly negative announcement-period returns. Finally, we discuss several policy suggestions to prevent future trading abuses and provide direction for future research.     

我国实施MBO对内部人控制的影响

经理层融资收购是公司控制权市场作用的一种表现形式,它不但可以作为公司外部治理机制发挥作用,而且能够影响公司内部治理机制的运作效率。但是,经理层融资收购在解决公司治理结构方面也不是万能的。本文分析了我国实施MBO后新的“内部人控制”问题,提出了相应的政策建议。     

The Economics of Insider Trading: A Free Market Perspective

We deny that asymmetrical information is a market failure. In order to make this case, we subject to critical scrutiny the strongest case for this thesis: the view that laws prohibiting insider trading are viable, necessary, or compatible with the rule of law.     

贸易大国的问题及出路

在中国外贸累计突破1万亿美元后,中国成为世界贸易大国已是不争的事实。但是,贸易大国并不等同于贸易强国,而贸易大国和贸易强国对我国经济的发展贡献度是大相径庭的。所以,探讨我国外贸的现存问题及解决思路,对我国的经济发展有着较为重大的意义。     

市场势力对初始排污权拍卖效率和收益的影响

从市场势力角度入手,运用市场势力相关理论,分析现有市场势力对初始排污权拍卖效率和收益的影响,认为市场势力会加剧收入分配中的＂马太效应＂,使分配不均进一步恶化,不利于形成公平、高效的初始排污权拍卖市场。