Hedge Funds and Insider Trading


The NYT published an editorial today on how information available to hedge funds by virtue of their being involved with trading loan derivatives may effectively mean some kind of insider trading.

Insider trading is interesting because the definition of who is an insider has everything to do with game theory. On one hand, you want people to capitalize on information so that there is incentive to spread the information faster, resulting in higher efficiency. On the other hand, if few enough people know something to begin with, it becomes profitable to withhold that information and release it in a disruptive manner such as to reap maximum profit.

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