Insider Trading Policy Shift: Boosting Overvalued Stocks, Banning Undervalued Ones
Insider trading should be regulated asymmetrically, allowing trades that lower overvalued stock prices but not those that raise undervalued stock prices. This is because decreasing overvalued stock prices benefits investors more than increasing undervalued stock prices. Overvalued stocks are more common and harder for management to correct due to biases and lack of information. An asymmetric insider trading policy would likely be agreed upon by shareholders and managers if they could negotiate it.