Archive for the ‘Ineffciency’ category

The (un)ethical insider

Ultimately the Raj Rajaratnam insider trading issue questions whether information, like price, is inefficient

The Raj Rajaratnam case may seem like an important case of insider trading involving a hedge fund in US, but it is more important when it comes to illustrating how market participants comprehend their market place. Rajaratnam denies wrongdoing and has argued that investment advisers routinely speak to company insiders as they do research.

 

When Satyam’s Raju pleaded guilty, he cut his losses immediately. By fighting the case Raj has raised the stakes. He is climbing an uphill task. The amount under question is $45 million. The first question that comes to mind is how did a 22-per cent return generating $7-billion fund founder reach to create a network for funnelling information? When money could be made ethically why should a fund manager rely on the easy way out? Even if we assume Raj is right about routine investigative research for companies, how will the state quantify what insider information made what money? What if it was the underlying trend that helped Raj and not the information?

This brings us back to the Dynegy case of 2004…

This article is written for Business Standard
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