From the US to Hong Kong, there’s no excuse for insider trading

The mighty Zambezi River has its source in northern Zambia, and flows north, west, south, then east, tracing borders for several countries including Zimbabwe. As the river enters Zimbabwe, the water molecules begin to flow faster, unknowingly energised – developing first into a rush, then eventually a torrent as they plunge down the Victoria Falls.This is an excellent analogy of the extremes of stock market price movements. In a stock market crash, prices move slowly, then very fast. My doctoral research illustrated that financial market behaviour is closely analogous to natural processes. They are linked by the simplicity of the instinctive behaviour of the animal spirit seen in markets. It is the principle of Occam’s razor – just as water flows downhill, humans too behave in simple, obvious patterns.Stock markets weigh the inclinations of millions of investors. They demonstrate the wisdom of the crowd. As the outcome of a political, economic or war event becomes clearer, prices move slowly with uncertainty at first, then more rapidly and with confidence, until the event outcome is proved – and fully priced into markets.Of course, if you know the outcome in advance you can make a killing. But insider trading is difficult to detect. What is the difference between intelligent analysis and betting using material, non-public information that has been gathered from being an “insider”?This week a lead story in the Financial Times was headlined “Pete Hegseth’s broker looked to buy defence fund before Iran attack”. Representatives of the US secretary of war had reportedly inquired about making a multimillion-dollar investment in a fund investing in major defence companies. The story was roundly denied by a Pentagon spokesman, but it highlights the sensitivity of the issue, and the caution required by people in power.Some say that insider trading adds knowledge to the market, making prices more liquid and accurate, and that it is a victimless crime. In reality, insider traders steal from the rest of us by unfairly using knowledge that is available only to those in privileged positions.US Secretary of War Pete Hegseth provides updates on military operations in Iran during a press briefing at the Pentagon on March 19, in Arlington, Virginia. Photo: Getty Images / TNS