Abstract The prohibition of insider trading is one of the foundational dogmas of capital markets regulation. Rooted in moral concerns over fairness and equal access to information, most legal systems take for granted that insider trading harms market integrity and investor confidence. However, this article challenges that assumption by re-evaluating insider trading from a legal-economic and behavioural perspective. Drawing on comparative insights from the USA, European Union, and recent developments in behavioural finance, this article argues that insider trading may in some contexts enhance market efficiency, improve liquidity, and facilitate more accurate pricing of assets. Furthermore, it critiques the psychological underpinnings of investor trust, highlighting that perceived safety—not objective enforcement—often drives market participation. This calls into question whether absolute prohibition is optimal, and opens the door for alternative regulatory designs that balance fairness with functionality. This article concludes by proposing a framework for rethinking insider trading regulation that integrates empirical evidence, behavioural theory, and pragmatic legal design.
Radosław Potok (Fri,) studied this question.
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