Financial Market

This discussion has 2 parts:

What is your opinion on the insider trading debate? In other words, should insider trading be illegal or legal? Offer your view on this statement based on your readings, life experiences, and ethics.
See Assigned Readings “Related to insider trading”

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Do you think financial markets, such as the stock market, are efficient? Offer your view on this statement based on your readings and/or real life experiences.
See Assigned Readings “Related to market efficiency”

Your initial post for each question should be approximately 100 to 200 words (unless the discussion question specifically provides a different guideline), formatted and cited in current APA style with at least one source other than the required textbook. Your initial posts are worth 8 points each.
You should respond to two of your peers by extending, refuting/correcting, or adding additional nuance to their posts.

student #1
Jun 30 at 3:49pm
Hello everyone,

Insider trading is an illegal ethical issue that has happened many times before, and many people have been caught doing this illegal act. For example, if someone works for a company that is planning on releasing a new product which will cause their stocks to skyrocket they could go and tell someone to invest in that company because they have insider information that gives them the information of knowing that investing in this companies stocks at a specific time will lead to a lot of money earned. “Obviously, the reason insider trading is illegal is because it gives the insider an unfair advantage in the market, puts the interests of the insider above those to whom he or she owes a fiduciary duty, and allows an insider to artificially influence the value of a company’s stocks” (HG Legal Sources 2020). Overall, I definitely think that insider trading should be illegal because of the unfair advantage that it gives people who are aware of this insider information.

For the most part financial markets are efficient; however, they do tend to have some flaws that don’t always make them completely efficient. “The efficient market hypothesis (EMH) maintains that all stocks are perfectly priced according to their inherent investment properties, the knowledge of which all market participants possess equally” (Dhir 2019). Investors value stocks differently, so it is nearly impossible to determine what a stock should be worth under an efficient market, which is an argument against the EMH. Also, no single investor can attain greater profitability than another investor with the same amount of invested funds under the EMH. Overall, there really is no such thing for financial markets to have perfect efficiency, but they can still be efficient.

HG Legal Resources. “What Is Insider Trading and Why Is It Illegal.” Hg.org, 2020, www.hg.org/legal-articles/what-is-insider-trading-and-why-is-it-illegal-31598#:~:text=Obviously%2C%20the%20reason%20insider%20trading,value%20of%20a%20company’s%20stocks (Links to an external site.).

Dhir, Rajeev. “Is the Stock Market Efficient?” Investopedia, Investopedia, 17 May 2020, www.investopedia.com/articles/basics/04/022004.asp.

student #2
YesterdayJul 1 at 5:43pm
What is your opinion on the insider trading debate? In other words, should insider trading be illegal or legal? Offer your view on this statement based on your readings, life experiences, and ethics.

Andrew Sebastian (2018) refers to insider trading as the purchase or sale of securities by someone with information that is material and not in the public realm and it can be done by not only company management, directors, and employees but also by outside investors, brokers, and fund managers (para. 1). While there is great debate on whether insider trading should be legal or illegal, I personally think it should remain illegal. My number one reason for this is that is an unethical practice. The people who benefit from utilizing insider information have a greater advantage than those who have invested stock and money but are still left in the dark. When trading, it should be equal, honest, and fair for all involved parties. Furthermore, Sebastian (2018) explains that insider trading “robs the investors who do not have non-public information of receiving the full value for their securities [and] if a select few people trade on material nonpublic information, the integrity of the markets will be damaged and investors will be discouraged from partaking in them” (para. 3-4).

Do you think financial markets, such as the stock market, are efficient? Offer your view on this statement based on your readings and/or real-life experiences.

I do not think financial markets, such as the stock market, are efficient, however, they are not 100 percent inefficient. “Market efficiency… suggests that the price of a security reflects all the information available about that security” (“Market Efficiency and Its Three Forms”, 2012, para. 2). Therefore, if the market were actually efficient, investors would not have access to any privileged and/or special information that they can use to their advantage to earn an extra profit; but unfortunately, that is not the case for financial markets, like the stock market. Then, to further confirm the inefficiency of certain financial markets, Adam Hayes (2020) explains that in inefficient markets, while some investors can make excess returns, “others can lose more than expected, given their level of risk exposure. If the market were entirely efficient, these opportunities and threats would not exist for any reasonable length of time since market prices would quickly move to match a security’s true value as it changed” (para. 9).

References

Hayes, A. (2020, April 03). Inefficient Market Definition. Retrieved from https://www.investopedia.com/terms/i/inefficientmarket.asp (Links to an external site.)

Market Efficiency and Its Three Forms. (2012, April 20). Retrieved from https://financetrain.com/market-efficiency-and-its-three-forms/ (Links to an external site.)

Sebastian, A. (2018, September 29). Why Insider Trading Is Bad for Financial Markets. Retrieved from https://www.investopedia.com/articles/markets-economy/092216/why-insider-trading-bad-financial-markets.asp

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