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31 J. Corp. L. 167 (2005-2006)
Insider Trading: Hayek, Virtual Markets, and the Dog That Did Not Bark

handle is hein.journals/jcorl31 and id is 179 raw text is: Insider Trading: Hayek, Virtual Markets, and the Dog that
Did Not Bark
Henry G. Manne*
I. INTRODU CTION  ........................................................................................................  167
II. B A CK G RO UN D  .........................................................................................................  168
III. T H E  M Y STERY  .........................................................................................................  174
IV . THE  M YSTERY  SOLVED  ........................................................................................... 177
V . T HE  W RAP-U P  .........................................................................................................  183
V I. C ON CLU SIO N  ...........................................................................................................  185
How is the betting?
Well, that is the curious part of it. You could have got fifteen to one yesterday, but
the price has become shorter and shorter, until you can hardly get three to one now.
Hum! said Holmes. Somebody knows something, that is clear!
Inspector Gregory: Is there any other point to which you would wish to draw my
attention?
Holmes: To the curious incident of the dog in the night-time.
The dog did nothing in the night-time.
That was the curious incident, remarked Sherlock Holmes.1
I. INTRODUCTION
This Article briefly reexamines the great debates on the role of insider trading in the
corporate system from the perspectives of efficiency of capital markets, harm to
individual investors, and executive compensation. The focus is on the mystery of why
trading by all kinds of insiders as well as knowledgeable outsiders was studiously ignored
by the business and investment communities before the advent of insider trading
regulation. It is hardly conceivable that officers, directors, and controlling shareholders
would have remained totally silent in the face of widespread insider trading if they had
seen the practice as being harmful to the company, to themselves, or to investors. By
analogy with the famous article by Friedrich Hayek, The Use of Knowledge in Society,
this Article considers the problem of obtaining necessary information for managers of
large corporate enterprises. The suggested analytical framework views the share price,
* Dean Emeritus and Univeristy Professor Emeritus, George Mason Univiersity School of Law. Copyright ©
2006, Henry G. Manne. I am grateful to Stephen M. Bainbridge, George Benston, William Carney, Enrico
Colombatto, Stanislav Dolgopolov, Geoffrey Manne, and Larry Ribstein for helpful suggestions and
discussions.
1. ARTHUR CONAN DOYLE, Silver Blaze, in THE ADVENTURES AND THE MEMOIRS OF SHERLOCK
HOLMES 309, 330 (Sterling Publishing 2004).

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