Final answer:
No one can benefit from inside information if the financial markets are strong form efficient, as it implies all information, including private, is reflected in stock prices. There are lesser degrees of efficiency, like weak-form and semi-strong form, which account for past trading and public information respectively.
Step-by-step explanation:
No one could benefit from inside information if the financial markets are strong form efficient. When markets are strong form efficient, all information, public and private, is already reflected in stock prices.
In the realm of financial markets, there are three levels of market efficiency: weak-form, semi-strong form, and strong form. Each level corresponds to the extent to which information is incorporated into stock prices. Weak-form efficiency asserts that all past trading information is reflected in stock prices, hence technical analysis would not be useful. Semi-strong form efficiency takes this further suggesting that all publicly available information is already accounted for in stock prices, rendering fundamental analysis ineffective.
The highest level is strong form efficiency, which indicates that all information, both public and private (or inside information), is completely integrated into stock prices. Therefore, not even insiders with proprietary or confidential information could achieve abnormal profits. Despite the theoretical appeal, many argue that strong form efficiency is not commonly seen in practice due to the complexities and imperfect information that characterizes real-world markets.