Bridge over ocean
1 November 1993 Financial Analysts Journal Volume 49, Issue 6

Ethics, Fairness and Efficiency in Financial Markets

  1. Hersh Shefrin
  2. Meir Statman, PhD
Do prohibitions against insider trading hamper economic efficiency or promote fairness? Financial market regulations are the outcome of a continuous tug-of-war between concern for economic efficiency and concern for fairness. This is demonstrated by the histories of six major regulations and the forces that have affected changes in the tradeoff over time. People often disagree about the relative weights that should be assigned to efficiency and fairness. They also disagree on the relative ranking of fairness rights. For example, prohibiting insider trading violates the right to engage freely in trade. Permitting legalized insider trading violates the right to equal information. Which right ranks higher?
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