Abstract
A recent article in this Journal argued that insider trading is an unethical practice leading to an inefficiently functioning market. The debate on this topic has primarily pitted ethical defenses of prohibition against economic arguments extolling its allowance. In addition to being incomplete, this approach ignores other unwanted economic effects of prohibition itself and unethical implications of its existence. This article shows that Adam Smith's free market concept, when properly interpreted, provides all the incentive structure necessary for an efficient and ethical marketplace even when insider trading is permitted.
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Deryl W. Martin has presented his research at several regional and national conferences, and has published in the ‘Journal of Economics and Business’, the ‘Journal of Strategic and Financial Decisions’, ‘The Moneypaper’, and several proceedings and newspapers. He is currently Assistant Professor of Finance at Tennessee Technological University in Cookeville, TN.
Jeffrey H. Peterson is a doctoral candidate in finance at the University of Alabama. He also has presented his research at several regional and national meetings, and is currently Instructor of Finance at St. Bonaventure University in Olean, NY.
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Martin, D.W., Peterson, J.H. Insider trading revisited. J Bus Ethics 10, 57–61 (1991). https://doi.org/10.1007/BF00383693
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DOI: https://doi.org/10.1007/BF00383693