February 22, 2010
Would Open Trading Trump Rational Apathy?In a recent New York Times online opinion piece, William D. Cohen discusses the significant stock sales that many high-level Goldman Sachs executives made in their own company during the worst part of the 2008 stock market fall. Cohen states that if people had had real-time information about the sales made by Goldman’s executives, the market had known would have not looked favorably on the news. I’m not so sure.
Although there are a number of potential downsides, I admit I am intrigued by the concept of making more real-time information available about trades by large shareholders and company employees. I’m not quite ready to agree with Henry Manne, et al., that insider trading should be permitted because it would send the market proper signals leading to more accurate stock price valuations (my apologies to all for the oversimplification), but perhaps more information would lead to better outcomes.
Then again, it seems like Enron should have been discounted significantly, too, given that no one could seem to figure out exactly how they were doing so well. (For a great discussion on this topic, see William D. Henderson & Hon. Richard D. Cudahy, From Insull to Enron: Corporate (Re)Regulation After the Rise and Fall of Two Energy Icons, 26 Energy L. J. 35 (2005)). In light of that, maybe no one would have noticed. After all, shareholders tend to be rationally apathetic, right?
February 22, 2010 | Permalink