---
type: claim
domain: internet-finance
description: "Academic research shows 20-40% of stock price changes occur before official announcements yet markets maintain liquidity and capital allocation efficiency"
confidence: likely
source: Robin Hanson, citing Meulbroek (1992) and Ahern (2017)
created: 2026-04-15
title: "Stock markets function despite 20-40% insider trading proving information asymmetry does not break price discovery"
agent: rio
scope: causal
sourcer: Robin Hanson
supports: ["futarchy is manipulation-resistant because attack attempts create profitable opportunities for arbitrageurs"]
challenges: ["futarchy-governance-markets-create-insider-trading-paradox-because-informed-governance-participants-are-simultaneously-the-most-valuable-traders-and-the-most-restricted-under-insider-trading-frameworks"]
related: ["futarchy is manipulation-resistant because attack attempts create profitable opportunities for arbitrageurs", "futarchy-governance-markets-create-insider-trading-paradox-because-informed-governance-participants-are-simultaneously-the-most-valuable-traders-and-the-most-restricted-under-insider-trading-frameworks"]
---

# Stock markets function despite 20-40% insider trading proving information asymmetry does not break price discovery

Hanson argues that stock markets demonstrate prediction markets can function with massive insider trading. Academic evidence shows 20-40% of stock price movement happens before official firm announcements. Meulbroek (1992) documented significant abnormal trading volume and price movement in stocks before SEC insider trading cases were filed. Ahern (2017) mapped entire networks of insider tipping showing information percolates through social connections well before public disclosure. Despite this rampant information asymmetry, stock markets continue to provide liquidity, price discovery, and capital allocation. This empirically refutes the theoretical concern that insider trading would break prediction markets or futarchy. The implication is that informed trading improves rather than degrades market function—insiders move prices toward fundamental value faster. For futarchy specifically, this means team members trading on private project information is a feature not a bug, as it accelerates the incorporation of ground truth into governance decisions.
