Bounded Rationality and the Concept of Materiality in Securities Regulation – How rational is the “reasonable investor”? (Abstract)

The concept of materiality – in the EU known as (price) relevance – is key to both the insider trading ban and the continuous disclosure obligation under EU and US securities regulation. The insider trading bans prohibit market participants from trading on non-public, material information. The EU continuous disclosure obligation requires issuers of financial instruments to publish any material information that is not publicly known and directly concerns those issuers. Both EU and US securities regimes measure materiality from the perspective of a “reasonable investor”. However, courts have reached differing conclusions on how rational reasonable investors really are. In the US, courts largely consider the reasonable investor to be a personification of perfectly rational markets ...

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