Securities Law Commons^™

Uncertainty, Dangerous Optimism, And Speculation: An Inquiry Into Some Limits Of Democratic Governance, Lynn A. Stout

Cornell Law Faculty Publications

People are often optimistic. Nearly fifty percent of marriages end in divorce, but one survey found that 100 percent of individuals planning to get married believed they would never get divorced. Most people think they drive better than the average driver, and at one university, ninety-four percent of professors placed themselves in the top fifty percent in terms of teaching skills. We often seem to think we are like the youth of Garrison Keillor’s fictional hometown Lake Wobegon, where “all the children are above average.”

This is not always a bad thing. Optimism can be advantageous. Without optimism, Columbus might …

Why The Law Hates Speculators: Regulation And Private Ordering In The Market For Otc Derivatives, Lynn A. Stout

Cornell Law Faculty Publications

A wide variety of statutory and common law doctrines in American law evidence hostility towards speculation. Conventional economic theory, however, generally views speculation as an efficient form of trading that shifts risk to those who can bear it most easily and improves the accuracy of market prices. This Article reconciles the apparent conflict between legal tradition and economic theory by explaining why some forms of speculative trading may be inefficient. It presents a heterogeneous expectations model of speculative trading that offers important insights into antispeculation laws in general, and the ongoing debate concerning over-the-counter (OTC) derivatives in particular.

Although trading …

Technology, Transactions Costs, And Investor Welfare: Is A Motley Fool Born Every Minute?, Lynn A. Stout

Cornell Law Faculty Publications

Computer network technology promises to revolutionize the secondary securities market and particularly to reduce dramatically the marginal costs associated with trading corporate equities. Lowering transactions costs usually is presumed to increase trader welfare. Certain unique characteristics of the secondary securities market suggest, however, that reducing the marginal costs associated with trading stocks may have the perverse and counterintuitive effect of decreasing investor welfare. Policymakers should consider this possibility as they respond to the market's rapid evolution.