Papers presented by Kevin R. Douglas since 2019
2025 Atlanta, Georgia
"Finding Empirical Measures of Market Confidence Using Goodwin v. Agassiz"
Kevin R. Douglas, Michigan State University
Abstract:
The “market confidence” rationale for securities regulation began with Franklin D. Roosevelt’s defense of mandatory disclosure laws under the Securities Act of 1933. In the 1980s, scholars and Securities and Exchange Commission (SEC) officials began using the same rationale to defend the prohibition on insider trading. Many officials and scholars describe the prohibition and other trading restrictions as necessary to “make investors more willing to commit their capital.” In this paper, we evaluate the market response to a state supreme court declaring insider trading legal several decades before the practice was first penalized by the SEC. According to the market confidence rationale, evidence of insider trading should have lowered the demand for the securities issued by the companies run by the defendants in this case. On the contrary, our preliminary results show a positive but statistically insignificant increase in demand (price and volume) for our target company’s stock in response to the Massachusetts Supreme Court declaring insider trading legal. The results also show an almost non-response to a Massachusetts appellate court’s earlier decision to dismiss the case. Despite dramatic changes in the character of “ordinary investors” between 1933 and today, these results suggest that the market confidence rationale for insider trading relies on ineffective assumptions about human behavior.
2023 Detroit, MI, United States
"Finding Empirical Measures of Market Confidence using Goodwin v. Agassiz"
Kevin R. Douglas, Michigan State University
Abstract:
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).