Have you been wondering lately whether the stock market is giving proper weight to what appears to be the beginnings of a full-blown civil war in Iraq?

If so, you might take a gander at a thoughtful if inconclusive piece by Philip Pearlman, the interactive editor at Yahoo Finance, who wonders whether the stock market might be just a bit too chill about this latest military skirmish.

"To date, equity markets have not really responded negatively to the destabilization of Iraq, a nation with the fifth-largest oil reserves in the world," writes Pearlman.

To be sure, he writes, crude oil futures have rallied about 5% over the last 10 days. "But even there, the argument can be made that price is not fully discounting risks that are suddenly becoming apparent."

Pearlman, to his credit, wonders aloud whether the stock market, in its collective wisdom, may have placed the new Iraq war in its proper perspective.

"Perhaps the ungluing of Iraq is no big deal and financial markets are responding rationally to what appears to be an accelerating risk, but really is not a threat to the continuing, albeit subdued, economic recovery," he writes. "On the other hand, perhaps the market is behaving in a way that is familiar to behavioral economists - by underreacting to new and surprising information while market participants only gradually process the new information."

Pearlman quotes MIT professor Andrew Lo, who argues that market participations often don't get it right when it comes to processing new information, including a building geopolitical crisis.

Adds Pearlman: "People are not perfect information processors and it takes us time to fully wrap our heads around the implications of new and surprising information."

Seems like Pearlman is stating the obvious here in a piece that suffers from "on the one hand but on the other hand" disease.

For my money, the stock market is processing all the available information out there; in short, it's reflexes aren't as rusty as the MIT professor may be suggesting. If events in Iraq heat up, so will the market's reaction.

As someone who believes that markets are largely efficient and that it's really hard to gain a consistent legal informational edge, I'm hardly surprised that even smart investors at big hedge funds engage in illegal insider trading.

So it should come as no surprise that a new academic study by professors at New York University and McGill University in Montreal concludes that a quarter of all public company merger deals may involve some sort of improper insider trading.

New York Times columnist Andrew Ross Sorkin writes that "the professors examined stock option movements — when an investor buys an option to acquire a stock in the future at a set price — as a way of determining whether unusual activity took place in the 30 days before a deal's announcement."

But, the professors conclude, the Securities and Exchange Commission litigated only about 4.7% of the 1,859 M&A deals included in their sample.


But another column, by MarketWatch's David Weidner, wonders why Sorkin views this latest study as "ground breaking."

"The public, traders, investors and regulators have known insider trading is rampant and widespread," writes Weidner. "If there is a ground-breaking conclusion, it's that only a quarter of deals are preceded by questionable trades."

Weidner writes that In 2007, a record-breaking year for M&A activity, he tracked options trading before big announcements and wrote about them in a weekly feature. "I charted suspicious trades before mergers, earnings or other important announcements such as regulatory approvals for drugs," he adds.

"I found 17 of these trades in just under a few months. But I quit looking. Readers didn't seem to care. Regulators were paid to care, but didn't."

"In the end," Weidner concludes," this study will probably fade away until the next time a journalist gets suspicious and looks it up."

E-mail: john.kimelman@barrons.com