UK

Reviving Trust in the Market: Investment Research and Conflicts of Interest

Joanna Gray, University of Dundee

“Full and Perfect Information”

It is an elementary principle of microeconomics that for a market to function competitively buyers and sellers must be in possession of full and perfect information as to the goods or services traded thereon. Although the economist’s model of a perfectly competitive, frictionless market rarely exists in practice nevertheless it is the job of legal and regulatory systems to ensure that real world markets approximate as closely as possible to the ideal. Many regulatory interventions can be seen as attempts to correct market failures and support, rather than reduce market competitiveness and efficiency. In securities markets it is the research reports and recommendations produced by investment analysts that form the major part of the information base on which buying and selling decisions are made by both retail and institutional investors.