great post. theory is most dangerous when applied to the real world when assumptions are commonly violated
Only one type of insider trading is certain; "we are bankrupt". Think of the deficit number, if I knew beforehand it was going to be a record, I would have gone heavily short the dollar and seen my arse
Insider trading has an element of non randomness, but this is largely an anamoly. Stock prices are not rational, as thier P/E is not 1:1. So if that insider keeps buying without without insider knowledge, he will most likely return those gains he made with inside information.
"people, having different needs, different views, different utility and risk-profiles." And this is predictable? Is there any evidence that this is predictable?
Sure, just becouse there's non-random behaviour doesn't mean everyone knows its there or how to trade it. If theres selling on a good announcement then either someone knew in advance, or many people expected it. If many people expect correctly then your inside information is not much good. I think you're confusing price rationality and trader rationality. If a trader acts irrationally then his bids/offers will be seized upon by more rational traders. Thats why irrational trading creates non-random markets (non-random to the rationally minded). If traders were completely rational then the markets would be completely random, the moment an announcement was made the price would imediately change to one that reflects the true value presicely (and the entire market would agree). Now we all know that doesn't happen, prices are affected by irrational traders every-day. The fact that no-one knows the true price of the markets means that the current price is only ever the best bet of the market. Much of the time no-one knows whether that 'best-bet' is true or not. But a good trader knows the odds, and knows that in certain circumstances the odds are high that the 'best-bet' of the market is wrong. In these circumstances many traders are being irrational (creating a non-random market), and a few traders can take advantage of it.
Predicting randomess may be an exercise in futility. How do you explain a stock that reports earnings, is up 5% in after hours trading, is up 6% in pre-market hours trading the next day and closes the day down more than 4% If a simple occurrence such as this does not lend itself to any measure of reason then so much for predicting randomness.