what is an example of adverse selection in trading and investing 
in stock markets there are some natural information asymmetries for example companies that issue shares know more about their internal finances and earnings before the general public does this can lead to cases of insider trading where those in the know profit from stock trades before public announcements are made which is an illegal practice another asymmetry involves the inventories of market makers and some institutional traders while large holders of a company s stock are made public this information is only disseminated on a quarterly basis this means that these players in the market may have a particular axe to grind for example a strong desire or need to buy or sell that is not known by the investing public the bottom linecontrary to assumptions made by mainstream economic and financial models information is not symmetrically accessible and available to all actors in a market in particular sellers and producers often have far more information about what they are selling than do buyers this information asymmetry can lead to market inefficiencies via what is known as adverse selection in insurance markets applicants have more information about themselves than do insurers meaning that they withhold key information about being higher risk 