How pervasive is insider trading?

WHEN a stock rises or falls in unusual fashion prior to a major corporate announcement there are invariably complaints that the information was somehow leaked. And the talk is that insiders have benefited, either by buying or selling before the rest of the market. Because this is unfair and undermines confidence, calls are then made for regulators to investigate.

However, once the dust has settled and the clamour for official intervention subsided, there is usually resigned acceptance that because proving insider trading is so difficult, pushing for official probes would probably be a waste of time. As time passes, such incidents of what could have been insider trading are then forgotten.

Just how widespread is insider trading? Speak to market observers here and the response anecdotally is that it is fairly common. One dealer said: "It goes on all the time." This is arguably neither here nor there but over in the US, three North American finance professors recently attempted to answer this question through rigorous statistical analy…