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Transfer of information by an informed trader

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  • Dev, Pritha

Abstract

This paper analyzes the effect of the transfer of information by an informed strategic trader (owner) to another strategic player (buyer). It shows that while the owner will never fully divulge his information, he may transfer a noisy signal of his information to the buyer. With such a transfer, the owner loses some of his informational superiority and yet increases his trading profit. I also show that if the transfer can be made to more than one buyer, then, the owner’s profit is increasing in the number of other buyers to whom the transfer is made.

Suggested Citation

  • Dev, Pritha, 2013. "Transfer of information by an informed trader," Finance Research Letters, Elsevier, vol. 10(2), pages 58-71.
    • Handle: RePEc:eee:finlet:v:10:y:2013:i:2:p:58-71
    DOI: 10.1016/j.frl.2013.01.002
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    Cited by:

    1. Jorge Pérez-Rodríguez & Emilio Gómez-Déniza & Simón Sosvilla-Rivero, 2019. "“Testing for private information using trade duration models with unobserved market heterogeneity: The case of Banco Popular”," IREA Working Papers 201907, University of Barcelona, Research Institute of Applied Economics, revised Apr 2019.
    2. Zhang, Yongjie & An, Yahui & Feng, Xu & Jin, Xi, 2017. "Celebrities and ordinaries in social networks: Who knows more information?," Finance Research Letters, Elsevier, vol. 20(C), pages 153-161.
    3. 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.
    4. Pérez-Rodríguez, Jorge V. & Sosvilla-Rivero, Simón & Andrada-Felix, Julián & Gómez-Déniz, Emilio, 2022. "Searching for informed traders in stock markets: The case of Banco Popular," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Market microstructure; Transfer of information;

    JEL classification:

    • 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
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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