IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v63y2008i2p639-672.html
   My bibliography  Save this article

Information Sales and Insider Trading with Long‐Lived Information

Author

Listed:
  • GIOVANNI CESPA

Abstract

Fundamental information resembles in many respects a durable good. Hence, the effects of its incorporation into stock prices depend on who is the agent controlling its flow. Like a durable goods monopolist, a monopolistic analyst selling information intertemporally competes against herself. This forces her to partially relinquish control over the information flow to traders. Conversely, an insider solves the intertemporal competition problem through vertical integration, thus exerting tighter control over the information flow. Comparing market patterns I show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades.

Suggested Citation

  • Giovanni Cespa, 2008. "Information Sales and Insider Trading with Long‐Lived Information," Journal of Finance, American Finance Association, vol. 63(2), pages 639-672, April.
    • Handle: RePEc:bla:jfinan:v:63:y:2008:i:2:p:639-672
    DOI: 10.1111/j.1540-6261.2008.01327.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1540-6261.2008.01327.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-6261.2008.01327.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Admati, Anat R & Pfleiderer, Paul, 1988. "Selling and Trading on Information in Financial Markets," American Economic Review, American Economic Association, vol. 78(2), pages 96-103, May.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Cespa, Giovanni, 2002. "Short-term investment and equilibrium multiplicity," European Economic Review, Elsevier, vol. 46(9), pages 1645-1670, October.
    4. Danthine, Jean-Pierre & Moresi, Serge, 1993. "Volatility, information and noise trading," European Economic Review, Elsevier, vol. 37(5), pages 961-982, June.
    5. Ke, Bin & Huddart, Steven & Petroni, Kathy, 2003. "What insiders know about future earnings and how they use it: Evidence from insider trades," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 315-346, August.
    6. Foster, F Douglas & Viswanathan, S, 1990. "A Theory of the Interday Variations in Volume, Variance, and Trading Costs in Securities Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 593-624.
    7. Holden, Craig W & Subrahmanyam, Avanidhar, 1996. "Risk Aversion, Liquidity, and Endogenous Short Horizons," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 691-722.
    8. Thierry Foucault & M. Pagano & A. Roell, 2010. "Market Transparency," Post-Print hal-00575595, HAL.
    9. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    10. Sudipto Bhattacharya & Giovanna Nicodano, 2001. "Insider Trading, Investment, and Liquidity: A Welfare Analysis," Journal of Finance, American Finance Association, vol. 56(3), pages 1141-1156, June.
    11. Giovanni Cespa, 2004. "A Comparison of Stock Market Mechanisms," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 803-824, Winter.
    12. Bhattacharya, Sudipto & Nicodano, Giovanna, 1999. "Insider Trading, Investment and Liquidity," CEPR Discussion Papers 2251, C.E.P.R. Discussion Papers.
    13. Jean-Charles Rochet & Jean-Luc Vila, 1994. "Insider Trading without Normality," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 131-152.
    14. Luis Angel Medran & Xavier Vives, 2004. "Regulating Insider Trading When Investment Matters," Review of Finance, European Finance Association, vol. 8(2), pages 199-277.
    15. Cornell, Bradford & Sirri, Erik R, 1992. "The Reaction of Investors and Stock Prices to Insider Trading," Journal of Finance, American Finance Association, vol. 47(3), pages 1031-1059, July.
    16. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    17. Giacinta Cestone & Lucy White, "undated". "Anti-Competitive Financial Contracting: The Design Of Financial Claims," UFAE and IAE Working Papers 453.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    18. Giacinta Cestone & Lucy White, 2003. "Anticompetitive Financial Contracting: The Design of Financial Claims," Journal of Finance, American Finance Association, vol. 58(5), pages 2109-2141, October.
    19. He, Hua & Wang, Jiang, 1995. "Differential Information and Dynamic Behavior of Stock Trading Volume," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 919-972.
    20. Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-887, August.
    21. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 729-749.
    22. Giacinta Cestone & Lucy White, 2003. "Anticompetitive Financial Contracting: The Design of Financial Claims," Journal of Finance, American Finance Association, vol. 58(5), pages 2109-2142, October.
    23. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
    24. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. "Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-270, March.
    25. Giovanni Cespa & Xavier Vives, 2012. "Dynamic Trading and Asset Prices: Keynes vs. Hayek," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 539-580.
    26. Vives, Xavier, 1995. "Short-Term Investment and the Informational Efficiency of the Market," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 125-160.
    27. Caballe, Jordi & Krishnan, Murugappa, 1994. "Imperfect Competition in a Multi-security Market with Risk Neutrality," Econometrica, Econometric Society, vol. 62(3), pages 695-704, May.
    28. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    29. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    30. Huddart, Steven & Hughes, John S & Levine, Carolyn B, 2001. "Public Disclosure and Dissimulation of Insider Trades," Econometrica, Econometric Society, vol. 69(3), pages 665-681, May.
    31. Michael J. Fishman & Kathleen M. Hagerty, 1992. "Insider Trading and the Efficiency of Stock Prices," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 106-122, Spring.
    32. Naik, Narayan Y., 1997. "Multi-period information markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(7), pages 1229-1258, June.
    33. Admati, Anat R. & Pfleiderer, Paul, 1986. "A monopolistic market for information," Journal of Economic Theory, Elsevier, vol. 39(2), pages 400-438, August.
    34. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March.
    35. Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
    36. Fabio C. Bagliano & Carlo A. Favero & Giovanna Nicodano, 2011. "Insider Trading, Traded Volume and Returns," Working papers 26, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    37. Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-657, May.
    38. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    39. Kane, Alex & Marks, Stephen G., 1990. "The delivery of market timing services: Newsletters versus market timing funds," Journal of Financial Intermediation, Elsevier, vol. 1(2), pages 150-166, June.
    40. Admati, Anat R & Pfleiderer, Paul, 1990. "Direct and Indirect Sale of Information," Econometrica, Econometric Society, vol. 58(4), pages 901-928, July.
    41. Michael Waldman, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 273-283.
    42. Foster, F Douglas & Viswanathan, S, 1996. "Strategic Trading When Agents Forecast the Forecasts of Others," Journal of Finance, American Finance Association, vol. 51(4), pages 1437-1478, September.
    43. Subrahmanyam, Avanidhar, 1991. "Risk Aversion, Market Liquidity, and Price Efficiency," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 416-441.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xu, Hedong & Tian, Cunzhi & Ye, Wenxing & Fan, Suohai, 2018. "Effects of investors’ power correlations in the power-based game on networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 424-432.
    2. Jhinyoung Shin & Rajdeep Singh, 2010. "Corporate Disclosures: Strategic Donation of Information," International Review of Finance, International Review of Finance Ltd., vol. 10(3), pages 313-337, September.
    3. Foucault, Thierry & Cespa, Giovanni, 2008. "Insiders-outsiders, transparency and the value of the ticker," HEC Research Papers Series 892, HEC Paris.
    4. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    5. García, Diego & Vanden, Joel M., 2009. "Information acquisition and mutual funds," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1965-1995, September.
    6. Xu, Hedong & Tian, Cunzhi & Xiao, Xinrong & Fan, Suohai, 2018. "Evolutionary investors’ power-based game on networks," Applied Mathematics and Computation, Elsevier, vol. 330(C), pages 125-133.
    7. Guo, Mng, 2023. "Dampening effect and market efficiency," Journal of Economic Dynamics and Control, Elsevier, vol. 148(C).
    8. Foucault, Thierry & Cespa, Giovanni, 2008. "Insiders-outsiders, transparency and the value of the ticker," HEC Research Papers Series 892, HEC Paris.
    9. Zheng, Liping & Xu, Hedong & Tian, Cunzhi & Fan, Suohai, 2021. "Evolutionary dynamics of information in the market: Transmission and trust," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 581(C).
    10. Dugast, Jérôme & Foucault, Thierry, 2018. "Data abundance and asset price informativeness," Journal of Financial Economics, Elsevier, vol. 130(2), pages 367-391.
    11. Basu, Kaushik & Sun, Haokun, 2022. "The power and influence of rating agencies with insights into their misuse," Economic Modelling, Elsevier, vol. 109(C).
    12. Raffi Indjejikian & Hai Lu & Liyan Yang, 2014. "Rational Information Leakage," Management Science, INFORMS, vol. 60(11), pages 2762-2775, November.
    13. Shiyang Huang & Bart Zhou Yueshen, 2021. "Speed Acquisition," Management Science, INFORMS, vol. 67(6), pages 3492-3518, June.
    14. Liu, Xia & Huang, Wenli & Liu, Bo & Zhang, Xiaohong, 2019. "Strategic leakage of private information," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 637-644.
    15. Giovanni Cespa & Thierry Foucault, 2014. "Sale of Price Information by Exchanges: Does It Promote Price Discovery?," Management Science, INFORMS, vol. 60(1), pages 148-165, January.
    16. Shiyang Huang & Yan Xiong & Liyan Yang, 2022. "Skill Acquisition and Data Sales," Management Science, INFORMS, vol. 68(8), pages 6116-6144, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giovanni Cespa, 2008. "Information Sales and Insider Trading with Long‐Lived Information," Journal of Finance, American Finance Association, vol. 63(2), pages 639-672, April.
    2. Andrea M. Buffa & Giovanna Nicodano, 2008. "Should Insider Trading be Prohibited when Share Repurchases are Allowed?," Review of Finance, European Finance Association, vol. 12(4), pages 735-765.
    3. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1289-1361, Elsevier.
    4. Ardalan, Kavous, 1998. "Financial markets with asymmetric information: An expository review of seminal models," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 23-51.
    5. Giovanni Cespa, 2005. "Giffen goods and market making," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 983-997, June.
    6. Giovanni Cespa & Xavier Vives, 2011. "Expectations, Liquidity, and Short-term Trading," CESifo Working Paper Series 3390, CESifo.
    7. Dimitri Vayanos & Jiang Wang, 2012. "Market Liquidity -- Theory and Empirical Evidence," NBER Working Papers 18251, National Bureau of Economic Research, Inc.
    8. Giovanni Cespa, 2004. "A Comparison of Stock Market Mechanisms," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 803-824, Winter.
    9. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    10. Giovanni Cespa & Xavier Vives, 2015. "The Beauty Contest and Short-Term Trading," Journal of Finance, American Finance Association, vol. 70(5), pages 2099-2154, October.
    11. Raffi Indjejikian & Hai Lu & Liyan Yang, 2014. "Rational Information Leakage," Management Science, INFORMS, vol. 60(11), pages 2762-2775, November.
    12. Dridi, Ramdan & Germain, Laurent, 2009. "Noise and competition in strategic oligopoly," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 311-327, April.
    13. Wilhelm Jr, William J & Chen, Zhaohui, 2005. "The Industrial Organization of Financial Market Information Production," CEPR Discussion Papers 5314, C.E.P.R. Discussion Papers.
    14. Giovanni Cespa & Thierry Foucault, 2014. "Sale of Price Information by Exchanges: Does It Promote Price Discovery?," Management Science, INFORMS, vol. 60(1), pages 148-165, January.
    15. García, Diego & Urošević, Branko, 2013. "Noise and aggregation of information in large markets," Journal of Financial Markets, Elsevier, vol. 16(3), pages 526-549.
    16. Cespa, Giovanni, 2002. "Short-term investment and equilibrium multiplicity," European Economic Review, Elsevier, vol. 46(9), pages 1645-1670, October.
    17. Biais, Bruno & Glosten, Larry & Spatt, Chester, 2005. "Market microstructure: A survey of microfoundations, empirical results, and policy implications," Journal of Financial Markets, Elsevier, vol. 8(2), pages 217-264, May.
    18. Dev, Pritha, 2013. "Transfer of information by an informed trader," Finance Research Letters, Elsevier, vol. 10(2), pages 58-71.
    19. Liu, Jun & Peleg, Ehud & Subrahmanyam, Avanidhar, 2004. "The Value of Private Information," University of California at Los Angeles, Anderson Graduate School of Management qt71t9z3w3, Anderson Graduate School of Management, UCLA.
    20. Xavier Vives & Giovanni Cespa, 2011. "Higher Order Expectations, Illiquidity, and Short Term Trading," 2011 Meeting Papers 929, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:63:y:2008:i:2:p:639-672. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.