This is the second installment of a multi-part guest blog presenting some of the results of the first comprehensive, large-scale, national survey of public attitudes regarding insider trading. My co-authors (Jeremy Kidd and George Mocsary) and I present the survey’s complete results in our forthcoming article, Public Perceptions of Insider Trading. This installment focuses on some of our results pertaining to the effect of insider trading on the public’s confidence in the integrity of our capital markets.
It turns out that most Americans believe that insider trading is pervasive. The following table breaks down respondents’ answers to the question, “How common do you think insider trading is?”
|
Very Common |
Common |
Rare |
Very Rare |
||
|
Overall |
25.4% |
55.0% |
15.0% |
4.6% |
|
|
Gender |
|||||
|
Female |
24.0% |
57.0% |
14.4% |
4.5% |
|
|
Male |
26.8% |
52.7% |
15.9% |
4.6% |
|
|
Race |
|||||
|
Asian |
25.8% |
51.5% |
18.2% |
4.5% |
|
|
Black |
41.6% |
38.8% |
15.2% |
4.5% |
|
|
Latinx |
25.3% |
55.4% |
14.5% |
4.8% |
|
|
Native Am. |
25.0% |
58.3% |
0.0% |
16.7% |
|
|
White |
22.3% |
58.3% |
15.1% |
4.3% |
|
|
Other |
22.7% |
54.6% |
13.6% |
9.1% |
|
|
Trading Status |
|||||
|
Invest |
30.5% |
52.1% |
14.4% |
3.0% |
|
|
Abstain |
21.5% |
56.9% |
15.9% |
5.7% |
|
Approximately 80% of Americans believe insider trading is common or very common. If insider trading’s perceived pervasiveness undermines market confidence, we would expect that those who actually invest in the stock market would be less likely to believe that insider trading is common or very common. But, in fact, the opposite is true: investors are actually slightly more likely (82.6%) to believe insider trading is pervasive than those who abstain from investing in the stock market (78.4%).
Respondents were also asked the following open-ended question with an opportunity to fill in a response: “If you had done your research and found a company that you liked and wanted to invest in, is there anything that might keep you from buying stock in that company?” Notably, despite knowing that the study was about insider trading, only 0.4% indicated that insider trading in the company would deter them from investing in that company. This suggests that, if awareness of insider trading does undermine market confidence, it is not among the public’s principal concerns.
The study did, however, find some support for the market-confidence theory. For example, consider the responses to the following questions that specifically address the market confidence issue:
“If you thought that a small number of people were trading on inside information concerning a company you have been researching, would it make you more likely to buy stock in that company, less likely, or make no difference?”
|
Less Likely |
No Difference |
More Likely |
Δ Less Likely vs. Market |
|
|
Overall |
48.2% |
34.3% |
17.5% |
+4.9% |
“If you knew insider trading was common in the stock market, would you be more likely to invest, less likely, or would it make no difference?”
|
Less Likely |
No Difference |
More Likely |
Δ Less Likely vs. Company |
|
|
Overall |
43.3% |
40.6% |
14.9% |
-4.9% |
While fewer than half of the survey’s participants said that they would be less likely to trade in a given stock (48.2%) or the market generally (43.3%) if they knew insider trading was taking place, these are not trivial numbers. Assuming that some of these respondents who would be less likely to trade do actually abstain from trading for that reason, this offers support for the market confidence justification for the regulation of insider trading. For a full demographic breakdown of the answers to these questions, as well as a table summarizing respondents’ explanations for their responses, see here.
The next installment of this post will explore public perceptions of the morality of insider trading, whether it should be illegal, and what penalties should be imposed.