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Differences in Ethical Perceptions of Insider Trading

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Abstract

This article examines ethical decision making related to insider trading. Using case study scenarios, we shed light on differences in evaluating the use of material nonpublic information when the expected outcomes of insider trading benefit clients versus the investment professional trading on inside information. Participants perceive insider trading that is expected to benefit clients to be a less egregious ethical violation even though it is as equally illegal as trading to benefit oneself directly. Although the judgment about insider trading should be independent of the benefit recipient, it is not. Given the increasing regulatory scrutiny of ethical behavior, this finding is important because professionals’ duties to (1) pursue clients’ best interest and (2) protect capital markets may represent conflicting obligations when evaluating whether to use material nonpublic information. In addition, our results show that individuals with a professional credential tend to view insider trading to be more unethical compared with others without a credential.

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  • Gerhard Hambusch & David Michayluk & Kevin Terhaar & Gerhard Van de Venter, 2021. "Differences in Ethical Perceptions of Insider Trading," Published Paper Series 2021-1, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ppaper:2021-1
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    Keywords

    Legal/regulatory/public policy; security analysis and valuation; risk management;
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