| Some other commenters have correctly pointed out that (1) my comment doesn't address whether the liquidity costs outweigh the benefits of extra information, and (2) why insider is different to outsiders doing research. I do implicitly address these issues in my comment, when I compare public information with insider information. Noise traders are the goose that lays the golden eggs[0]. They irrationally trade randomly in a stock, masking the trades of informed traders. They make a trading loss on average, and these losses provide the profits of informed traders, which gives those traders the incentive for price discovery. Although the simplest noise trader models can't capture this (as all information takes the same form) [1], public information is much less costly to the noise traders. So for example, noise traders lose a lot more if a company's earnings are leaked to a few individuals, than if these earnings are made public, because in the latter case the market maker can distinguish information from the the noise trader's trades. So (and again, a model is really needed to confirm this) public information is cheaper in terms of its impact on liquidity, than insider information. One thing I'm not certain of is whether many insiders competing to trade on the same information would be as good as public information. [0] See the seminal work of Kyle (1985), http://www.jstor.org/stable/1913210 and also the review article http://scholar.harvard.edu/shleifer/files/noise_trader_appro... [1] Giving the market maker access to a meaningful information set would resolve this issue. |