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Does insider trading contravene to any forms and assumptions of the EMH? If yes, which are...

Does insider trading contravene to any forms and assumptions of the EMH? If yes, which are these assumptions? How many forms can insider trading take? Why are some forms made illegal? Is there a rationale for that?

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Answer #1

Yes insider trading cntravene with Strong form hypothesis of EMH theory.

It violates the assumption that all private informtion should be shared with everyone.

Insider trading take two forms:

1. Weak form

2. Semi strong form

Strong form made illegal becasue as per strong form efficiency people can't generate extra profit by some information but incase of insider trading trading has some non-public information which he can exploit to generate extra return than others. And this return is not based on the skills but some illegal information.

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