An Analysis of the Role of "Insider Trading" on Futures Markets
Abstract
Section 23(b) of the Commodity Exchange Act requires the Commodity Futures Trading Commission (CFTC) to examine the possession by futures traders of nonpublic information concerning other persons' cash market or futures activities and to report to Congress on the adequacy of the commission's authority to prevent resulting from those circumstances. This request for a study of represented a compromise between groups that wanted to outlaw insider trading and those who felt that current regulations in the area were adequate. Unfortunately, section 23(b) does not define material nonpublic information, or state what abuses are associated with its possession, or require the CFTC to produce a costbenefit analysis of the effects of increasing the CFTC's authority. This paper provides a framework in which to analyze the role of insider trading in futures markets. Within this framework it will be possible to provide meaningful content to the terms mentioned in section 23(b) and to consider what evidence could be collected regarding correctable associated with insider trading.
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When participants are not equally informed, it is rational to condition demand on both private information and information inferred from others' demands via the futures price.
“When this is the case, it is rational for participants to condition demands on both their own information and information about other participants' demands that can be inferred (”
From Index Funds, Financialization, and Commodity Futures Markets (2011) · cites this paper as Grossman 1986
Uninformed trades can move prices if informed traders mistake noise for valuable information about fundamentals.
“The trades of uninformed participants can impact prices in this more realistic model if informed traders mistakenly believe that trades made by uninformed participants (”
From Index Funds, Financialization, and Commodity Futures Markets (2011) · cites this paper as Grossman 1986
Cites
On the impossibility of informationally efficient markets
Stiglitz, J. E., & Grossman, S. J. (1980) · Columbia University · doi:10.7916/d8765r99 · Cited by 3,645 · see citing works
Self-citationON THE EFFICIENCY OF COMPETITIVE STOCK MARKETS WHERE TRADES HAVE DIVERSE INFORMATION
Grossman, S. J. (1976) · The Journal of Finance · doi:10.1111/j.1540-6261.1976.tb01907.x · Cited by 1,427 · see citing works
Self-citationAn Introduction to the Theory of Rational Expectations Under Asymmetric Information
Grossman, S. J. (1981) · The Review of Economic Studies · doi:10.2307/2297195 · Cited by 445 · see citing works
Self-citationThe Existence of Futures Markets, Noisy Rational Expectations and Informational Externalities
Grossman, S. J. (1977) · The Review of Economic Studies · doi:10.2307/2296900 · Cited by 328 · see citing works
Self-citationThe Regulation of Insider Trading
Carlton, D. W., & Fischel, D. R. (2004) · doi:10.1002/9780470752135.ch20 · Cited by 251 · see citing works
Information Aggregation, Inflation, and the Pricing of Indexed Bonds
Huberman, G., & Schwert, G. W. (1985) · Journal of Political Economy · doi:10.1086/261289 · Cited by 68 · see citing works
Customer protection in futures and securities markets
Fischel, D. R., & Grossman, S. J. (1984) · Journal of Futures Markets · doi:10.1002/fut.3990040303 · Cited by 54 · see citing works
Self-citationRegulation, information and the behavior of the prices of seats on futures exchanges
Rystrom, D. S. (1982) · University Microfilms International eBooks · Cited by 1 · see citing works
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Index Funds, Financialization, and Commodity Futures Markets
Irwin, S. H., & Sanders, D. R. (2011) · Applied Economic Perspectives and Policy · doi:10.1093/aepp/ppq032 · Cited by 488 · see citing works
- Authors
- Grossman, S. J.
- Corresponding author
- Grossman, Sanford J.
- Venue
- The Journal of Business
- Publisher
- University of Chicago Press
- Published
- 1986-01
- Volume
- 59
- Issue
- S2
- Pages
- S129
- ISSN
- 0021-9398 (ISSN-L)
- 1537-5374
- OpenAlex
- W1976767007
- Cited by
- 33
- References
- 8
- Citations by year
- 2020: 2 · 2019: 1 · 2016: 3 · 2015: 1 · 2012: 2
- Type
- conference abstract
- Language
- en
- Open access
- closed
- Locations
- The Journal of Business (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Marketing › Securities Regulation and Market Practices
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- insider trading, futures markets, Commodity Futures Trading Commission, non-public information, material information, futures market regulation, cost-benefit analysis
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