The Social Networks of Insider Trading

This 74-page document on illegal insider trading networks concludes that insider trading is wildly profitable.

Number of Connections between Tipper-Tippee by Occupation
Number of Connections between Tipper-Tippee by Occupation
Number of Connections between Tipper-Tippee by Ancestry of Surname
Number of Connections between Tipper-Tippee by Ancestry of Surname

At first glance, the results also seem to indicate that insider trading tips tend to originate from top executives. Of course, CEOs generally have the most information. The charts also imply that Western Europeans are the biggest blabbermouths.

This study, however, is biased by the fact that it only includes insider traders who got caught. Some more likely conclusions: If you make a ton of money on insider trading, you’ll probably get caught. If you’re a top executive leaking tips to subordinates, you’ll probably get caught. Either Western Europeans are dumb and get caught most easily, or most traders are white people.

The SEC is a massively underfunded police officer. They waited until 2013 to charge Steve Cohen’s SAC Capital Advisors with insider trading, for stuff that happened in 2008. Cohen’s friend Mathew Martoma was only sentenced to prison last month.
The SEC is a massively underfunded police officer. They waited until 2013 to charge Steve Cohen’s SAC Capital Advisors with insider trading, for stuff that happened in 2008. Cohen’s friend Mathew Martoma was only sentenced to prison last month.

References:
Kenneth Ahern. Information Networks: Evidence from Illegal Insider Trading Tips. (October 4, 2014) —SSRN

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s