Ethical reasoning and the use of insider information in stock trading

Journal of Business Ethics 37 (2):165 - 173 (2002)
The cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior. In this study, we trained a sample of accounting and finance students in performing competitive stock trading in our state-of-the-art trading room. The subjects then performed trading of stocks under two experimental conditions: insider information, and no-insider information where significant performance-based financial awards were at stake. We also administered the Defining Issues Test (DIT). Ethical behavior, as the dependent variable was measured in a binary scale: whether the subjects used insider information for trading of stocks or not. Ethical reasoning as measured by the DIT P-score indicated statistically significant effect on ethical behavior. The results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading
Keywords ethics reasoning  insider information  stock trading
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Robert W. McGee (2008). Applying Ethics to Insider Trading. Journal of Business Ethics 77 (2):205 - 217.

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