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Theoretical Profiles for the Evaluation of Insider Trading in a Functional Model of Financial Instruments Market

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  • Paola Fandella

Abstract

The analysis is based on the premise that the capital market is characterized by weak forms of risk management, to be intended, in this case, as risk of information asymmetry as well as operational inefficiency, as there are no hedging schemes to prevent external actions and internal mechanisms are not inspired by adequate transparency principles. After a critical review of the theoretical effects of insider trading, starting with a market equilibrium assessment, this analysis seeks to demonstrate the absence of any positive effect linked to insider trading in relation to any type of variable and for any model of the securities market. Starting from the assumption that the negative trading activity of insiders manifests in any securities market structure, it has been shown that an operating model characterized by the presence of professional operators appears to be more capable of opposing a significant barrier to the entry of insiders. On the other hand, it has also been shown that the presence of professional operators cannot act alone and it may also lose action incisiveness and even cause informative viscosity effect, when such professional or institutional operators are directly involved in privatization operations.

Suggested Citation

  • Paola Fandella, 2018. "Theoretical Profiles for the Evaluation of Insider Trading in a Functional Model of Financial Instruments Market," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 9(1), pages 1-13, January.
    • Handle: RePEc:jfr:ijba11:v:9:y:2018:i:1:p:1-13
    DOI: 10.5430/ijba.v9n1p1
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    References listed on IDEAS

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    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    2. Meulbroek, Lisa K, 1992. "An Empirical Analysis of Illegal Insider Trading," Journal of Finance, American Finance Association, vol. 47(5), pages 1661-1699, December.
    3. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    4. Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-887, August.
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