Informational Efficiency and Market Integrity a Law and Finance Analysis of Insider Trading Regulation in the European Union and the United States

This thesis examines the regulatory dilemma between informational efficiency and market integrity in insider trading law within the European Union and the United States. Drawing on financial theory, particularly the Efficient Market Hypothesis, and legal analysis of the Market Abuse Regulation and U.S. Rule 10b-5, it investigates whether insider trading prohibition can be justified beyond efficiency considerations. The study adopts a law and finance approach, complemented by behavioural insights, to assess how legal frameworks structure information use in financial markets. While economic theory suggests that informed trading may enhance price accuracy, both jurisdictions impose restrictions grounded in fairness, investor protection, and institutional legitimacy. The comparative analysis highlights a divergence between the EU’s integrity-based, categorical model and the U.S. fraud-based, fiduciary approach. The thesis argues that market integrity operates not merely as a normative constraint but as a structural condition for sustainable efficiency, as investor confidence and participation are essential to market functioning. Ultimately, insider trading regulation reflects a balance between economic and legal rationalities, demonstrating that efficient markets depend on credible and legitimate institutional frameworks.