Investors Question the Integrity of the Financial Markets


Forty-seven percent of respondents in a world-wide survey of 400 investors believe that one-on-one meetings with companies regularly lead to “price sensitive information” being privately disclosed, according to a Yahoo Finance “Breakout” article by Peter Gorenstein entitled “Is the Market Rigged? Survey Says ‘ ‘Yes?'”

Such surveys, along with well-publicized current events, such as the insider trading trial of Raj Rajaratnam and David Sokol’s apparent front-running of Lubrizoil, show why many individual investors believe that the stock market is “rigged” against them, and have not participated in the more-than 2-year bull market.

In the accompanying interview The Daily Ticker’s Aaron Task and Daniel Gross discuss just how prevalent insider trading is on Wall Street with Barry Ritholtz director of research at FusionIQ.

“It may not be completely and totally rigged but damn if the odds aren’t against the average investor,” Barry Ritholtz director of research at FusionIQ, was quoted as saying, adding: “Real inside information is actually surprisingly rare [but] I wouldn’t be surprised if it’s traded on pretty actively.”

According to Ritholtz, what separates the successful professionals from the average individual investor is an edge in research and analysis, not “inside” information or “rumors whispered around trading floors.” “The best of the fund managers — they’re doing their own channel checks,” (i.e. legitimate research on industry trends), Ritholz said.

Even assuming professionals are receiving illegal inside information, as the survey suggests, Ritholtz argues most of it is does not rise to the level of a “slam dunk,” with the exception of inside information about pending mergers. But either way, he says, it is not the way investors want markets to function.

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