By James Saft
(Reuters) – There are a bunch of kids out there trading on inside information, and you, me and the rest of the economy are paying the price.
A study of trading patterns in Finland shows a highly suspicious pattern of activity in accounts held on behalf of juveniles.
In reality, it is probably not the kids themselves who are playing at being junior insider traders, but instead it is their guardians who are likely using juvenile accounts as a safer way to profit from non-public knowledge.
What’s worse, the data also demonstrates how the market detects which companies’ stocks are most plagued by “informed investing” and then imposes a penalty which effectively reduces both investor returns and overall economic growth.
Using data on a half a million accounts from Finland from 1995 to 2010, the study came to a surprising conclusion: accounts set up to benefit kids 10 years and under did really well at stock picking, and did especially well just before mergers, earnings releases and events that generate big stock moves.