Information disclosure with leakages
AbstractWe present a trading game with one insider, many outsiders, liquidity traders and a competitive market maker trading an asset with two value components, a private and a shared one, in a market operating as in Kyle (1985). The insider knows both value components and outsiders only know the shared component. The market maker receives a private signal in the form of a noisy transformation of the shared component, which we refer to as leakages. Before trade begins, the insider can disclose the value of the shared component to the entire market, thus removing the outsiders from the game. When the market maker's signal is sufficiently precise, the insider's benefit from knowing the shared component does not exceed the cost of concurrently trading with the outsiders, thus motivating the insider to reveal the shared component to the entire market. This result provides an explanation as to why some firm managers may naturally prefer to publicly disclose information rather than leaving it in the hands of select investors.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 5 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411
Insider trading; Information; Disclosure;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gintschel, Andreas & Markov, Stanimir, 2004. "The effectiveness of Regulation FD," Journal of Accounting and Economics, Elsevier, vol. 37(3), pages 293-314, September.
- Ahmed, Anwer S. & Schneible Jr., Richard A., 2007. "The impact of regulation Fair Disclosure on investors' prior information quality -- Evidence from an analysis of changes in trading volume and stock price reactions to earnings announcements," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 282-299, June.
- Carolina Manzano & Xavier Vives, 2010.
"Public and Private Learning from Prices, Strategic Substitutability and Complementarity, and Equilibrium Multiplicity,"
CESifo Working Paper Series
3137, CESifo Group Munich.
- Manzano, Carolina & Vives, Xavier, 2011. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 346-369.
- Manzano, Carolina & Vives, Xavier, 2010. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," Working Papers 2072/151544, Universitat Rovira i Virgili, Department of Economics.
- Manzano, Carolina & Vives, Xavier, 2010. "Public and Private Learning from Prices, Strategic Substitutability and Complementarity, and Equilibrium Multiplicity," CEPR Discussion Papers 7949, C.E.P.R. Discussion Papers.
- Manzano, Carolina & Vives, Xavier, 2010. "Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity," IESE Research Papers D/874, IESE Business School.
- Liu, Hong & Zhang, Zhixiang, 2011. "Insider trading with public and shared information," Economic Modelling, Elsevier, vol. 28(4), pages 1756-1762, July.
- Jhinyoung Shin & Rajdeep Singh, 2010. "Corporate Disclosures: Strategic Donation of Information-super-," International Review of Finance, International Review of Finance Ltd., vol. 10(3), pages 313-337.
- Anchada Charoenrook & Craig M. Lewis, 2009. "Information, Selective Disclosure, and Analyst Behavior," Financial Management, Financial Management Association International, vol. 38(1), pages 39-57, 03.
- Richard A. DeFusco & Suchi Mishra & K. Raghunandan, 2010. "Changes in the Information Efficiency of Stock Prices: Additional Evidence," The Financial Review, Eastern Finance Association, vol. 45(1), pages 153-165, 02.
- Duarte, Jefferson & Han, Xi & Harford, Jarrad & Young, Lance, 2008. "Information asymmetry, information dissemination and the effect of regulation FD on the cost of capital," Journal of Financial Economics, Elsevier, vol. 87(1), pages 24-44, January.
- Noldeke, Georg & Troger, Thomas, 2001.
"Existence of linear equilibria in the Kyle model with multiple informed traders,"
Elsevier, vol. 72(2), pages 159-164, August.
- Georg Nöldeke & Thomas Tröger, 2001. "Existence of Linear Equilibria in the Kyle Model with Multiple Informed Traders," Bonn Econ Discussion Papers bgse1_2001, University of Bonn, Germany.
- Sanford J Grossman & Joseph E Stiglitz, 1997.
"On the Impossibility of Informationally Efficient Markets,"
Levine's Working Paper Archive
1908, David K. Levine.
- 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.
- RenÈ Caldentey & Ennio Stacchetti, 2010. "Insider Trading With a Random Deadline," Econometrica, Econometric Society, vol. 78(1), pages 245-283, 01.
- Praveen Sinha & Christopher Gadarowski, 2010. "The Efficacy of Regulation Fair Disclosure," The Financial Review, Eastern Finance Association, vol. 45(2), pages 331-354, 05.
- Liang, Woan-lih & Lin, Hsiou-wei W. & Syu, Yir-Jung, 2010. "Precision of Investor Information and Financial Disclosure," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 627-632, October.
- Huddart, Steven & Hughes, John S & Levine, Carolyn B, 2001. "Public Disclosure and Dissimulation of Insider Trades," Econometrica, Econometric Society, vol. 69(3), pages 665-81, May.
- Warren Bailey & Haitao Li & Connie X. Mao & Rui Zhong, 2003. "Regulation Fair Disclosure and Earnings Information: Market, Analyst, and Corporate Responses," Journal of Finance, American Finance Association, vol. 58(6), pages 2487-2514, December.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Jain, Neelam & Mirman, Leonard J., 1999. "Insider trading with correlated signals," Economics Letters, Elsevier, vol. 65(1), pages 105-113, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.