Abstract

"Finding Empirical Measures of Market Confidence using Goodwin v. Agassiz"

Kevin R. Douglas, Michigan State University (kevin.douglas@law.msu.edu)

This paper will use an event study to test prominent economic assumptions, especially the claim that prohibiting insider trading promotes market confidence among ordinary investors. This paper relies on historical price data for Calumet and Hecla (C&H), the parent company of Cliff Mining Company (Cliff Mining). Cliff Mining is the company at issue in Goodwin v. Agassiz, the only state supreme court case on insider trading before the Securities and Exchange Commission outlawed the practice in 1961. This study will directly measure investor confidence using changes in actual demand for the stock in a company where evidence of insider trading is firm and where the background stigma of white-collar crime does not have an impact.

This paper supports the conference theme of reinvention by promoting history’s capacity to be creative and analytical. Attempting to follow Newton’s scientific method, the economic models challenged by this study begin with abstract ideas and assumptions before exploring concrete facts. This paper aims to remind finance scholars and economists that Newton’s work depended on centuries of observations made by others. This project will also highlight the role of politics in the process of cultural change—if not reinvention. Goodwin, the plaintiff, filed suit shortly after Agassiz publicly broke with the Republican party. This timeline supports the inference that Goodwin was motivated by party politics and not by an aversion to insider trading. Finally, while Agassiz came from a wealthy Massachusetts family, C&H and Cliff Mining were located in Michigan, a hotbed of innovation and economic growth during this lawsuit.

[FN1] Goodwin v. Agassiz, 186 N.E. 659 (Mass. 1933).
[FN2] In re Cady, Roberts & Co, 40 S.E.C. 907 (1961).