Insider trading

I think one of the main things that has fueled a backlash against the global elites is the (correct) perception that they play by different rules. When they make financial mistakes, they get bailed out with taxpayer dollars with no consequences. Gains are privatized and losses are socialized. Another example is insider trading where people profit from securities transactions using nonpublic information. While there have been several high profile cases in recent years (e.g. here is a Baltimore example), my guess is that insider trading is rampant since it is so easy to do and so hard to detect. The conventional wisdom for combating insider trading is stronger enforcement and penalties. However, my take is that this will just lead to a situation where small time insider traders get squeezed out while the sophisticated ones who have more resources will continue. This is an example where a regulation creates a monopoly or economic rent opportunity.

Aside from the collapse of morality that may come with extreme wealth and power (e.g. listen here), I also think that insider traders rationalize their activities because they don’t think that it hurts anyone even though there is an obvious victim. For example, if someone gets inside information that a highly touted drug has failed to win approval from the FDA then they can short the stock (or buy put options), which is an agreement or opportunity to sell the stock at the current price in the future. When the stock decreases in value after the announcement, they just buy the stock at the lower price, resell at the higher price, and reap the profits. The victim is the counter party to the trade who could be a rich trader but could also be someone’s pension fund or employees of the company.

Now the losing party or a regulatory agency could suspect a case of insider trading but to prove it would require someone confessing or finding an email or phone recording of the information passed. They could also try to set up a sting operation to try to catch serial violators. All of these things are difficult and costly. The alternative may seem ridiculous but I think the best solution may be to make insider trading legal. If it were legal then several things would happen. More people would do it which would drive down the prices for the trades, the information would more likely be leaked to the public since people would not be afraid of sharing it, and people would be more careful in making trades prior to big decisions because the other party may have more information than they do. Companies would be responsible for policing people in their firms that leak information. By making insider information legal, the rent created by regulations would be reduced.

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Selection of the week

Sorry for the long radio silence. However, I was listening to the radio yesterday and this version of the Double Violin Concerto in D minor, BWV 1043 by JS Bach came on and I sat in my car in a hot parking lot listening to it. It’s from a forty year old EMI recording with violinists Itzhak Perlman and Pinchas Zukerman with Daniel Barenboim conducting the English Chamber Orchestra. I’ve been limiting my posts to videos of live performances but sometimes classic recordings should be given their due and this is certainly a classic. Even though I posted a version with Oistrakh and Menuhin before, I just had to share this.

What Uber doesn’t get

You may have heard that ride hailing services Uber and Lyft have pulled out of Austin, TX because they refuse to be regulated. You can read about the details here. The city wanted to fingerprint drivers, as they do for taxis, but Uber and Lyft forced a referendum on the city to make them exempt or else they would leave. The city voted against them. I personally use Uber and really like it but what I like about Uber has nothing to do with Uber per se or regulation. What I like is 1) no money needs to be exchanged especially the tip and 2) the price is essentially fixed so it is in the driver’s interest to get me to my destination as fast as possible. I have been taken on joy rides far too many times by taxi drivers trying to maximize the fare and I never know how much to tip. However, these are things that regulated taxis could implement and should implement. I do think it is extremely unfair that Uber can waltz into a city like New York and compete against highly regulated taxis, who have paid as much as a million dollars for the right to operate. Uber and Lyft should collaborate with existing taxi companies rather than trying to put them out of business. There was a reason to regulate taxis (e.g. safety, traffic control, fraud protection), and that should apply whether I hail a cab on the street or I use a smartphone app.

New review paper on GWAS

Comput Struct Biotechnol J. 2015 Nov 23;14:28-34
Uncovering the Genetic Architectures of Quantitative Traits.
Lee JJ, Vattikuti S, Chow CC.

Abstract
The aim of a genome-wide association study (GWAS) is to identify loci in the human genome affecting a phenotype of interest. This review summarizes some recent work on conceptual and methodological aspects of GWAS. The average effect of gene substitution at a given causal site in the genome is the key estimand in GWAS, and we argue for its fundamental importance. Implicit in the definition of average effect is a linear model relating genotype to phenotype. The fraction of the phenotypic variance ascribable to polymorphic sites with nonzero average effects in this linear model is called the heritability, and we describe methods for estimating this quantity from GWAS data. Finally, we show that the theory of compressed sensing can be used to provide a sharp estimate of the sample size required to identify essentially all sites contributing to the heritability of a given phenotype.
KEYWORDS:
Average effect of gene substitution; Compressed sensing; GWAS; Heritability; Population genetics; Quantitative genetics; Review; Statistical genetics

Phasers on stun

The recent controversy over police shootings of unarmed citizens has again stirred up the debate over gun control. However, Shashaank Vattikuti points out that there is another option and that is for the police to carry nonlethal weapons like phasers with a stun option. Although, an effective long range nonlethal weapon currently does not exist (tasers just don’t cut it), a billionaire like Mark Zuckerberg, Peter Thiel, or Elon Musk could start a company to develop one. New York Times columnist Joe Nocera has suggested that Michael Bloomberg buy a gun company. There are so many guns already in existence that barring an unlikely confiscation scheme there is probably no way to get rid of them. The only way to reduce gun violence at this point is for a superior technology to make them obsolete. Hobbyists and collectors would still own guns, just as there are sword collectors, but those who own guns for protection would probably slowly switch over. However, the presence of a nonlethal option could lead to more people shooting each other so strong laws regarding their use would need to accompany their introduction.