Information, and the Regulation of Inefficient Markets
Chapter in an edited book (author)

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AbstractWe are at the close of an era that has treated market efficiency with something bordering on religious wonder. When securities markets are understood as environments in which rational behaviour causes prices perfectly to reflect available information, regulators should hesitate to interfere beyond ensuring the disclosure of material information. Markets become the best diviners of truth and justice. However, as generally known and here recounted, work in the areas of market microstructure, behavioural psychology and financial economics have shown that there is little efficient mystery – but much complexity – in how securities market prices are formed.
This chapter of The Political Economy of Financial Regulation draws two conclusions from the waning belief in market efficiency: First, the entire market environment, particularly complex market infrastructure, should be examined for imbedded unfairness of the kind that led to the creation of the Investors Exchange (IEX). Detailed information about key market infrastructure should be disclosed. Second, the public should no longer be conditioned to share the viewpoint of market participants by daily feeds of ‘sporting event’ information, reporting ‘winners’ and ‘losers’ and ‘scores’ from the daily competition of traders. Rather, not entirely unlike public information about other activities (such as smoking) that contain hazard, information relevant to ordinary people should be made available, such as value changes in major pension funds, changes in median employee income, labour’s share of corporate profits, expected reductions of jobs or research expected from proposed mergers or takeovers, or changes in percentage of workers receiving full health care benefits at a given listed company.
All Author(s) ListDavid C. Donald
All Editor(s) ListEmilios Avgouleas, David C. Donald
Book titleThe Political Economy of Financial Regulation
Series TitleInternational Corporate Law and Financial Market Regulation
Year2019
Month1
PublisherCambridge University Press
Place of PublicationCambridge, UK
Pages38 - 62
ISBN9781108470360
eISBN9781108612821
LanguagesEnglish-United Kingdom
KeywordsMarket efficiency, market infrastructure, behavioural psychology

Last updated on 2020-22-10 at 23:12