Strategic Insider Trading with Imperfect Information: A Trading Volume Analysis
AbstractA model of insider trading is used to analyze the behaviour of trading volume in financial markets characterized by asymmetric information. This model extends the one in Bhattacharya and Nicodano (2001) by introducing competition among informed traders and imperfection of their private information. Contrary to the broad implications of adverse selection models and according to some empirical studies, this paper shows that trading volume is higher when the insiders are active in the market. A higher level of outsidersâ€™ risky investment, due to an improved â€œrisk sharingâ€ among them, leads to a higher level of trading.
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.
Bibliographic InfoArticle provided by SIPI Spa in its journal Rivista di Politica Economica.
Volume (Year): 94 (2004)
Issue (Month): 6 (November-December)
Contact details of provider:
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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.:
- Leland, Hayne E, 1992.
"Insider Trading: Should It Be Prohibited?,"
Journal of Political Economy,
University of Chicago Press, vol. 100(4), pages 859-87, August.
- Sudipto Bhattacharya, 2001.
"Insider Trading, Investment, and Liquidity: A Welfare Analysis,"
Journal of Finance,
American Finance Association, vol. 56(3), pages 1141-1156, 06.
- Giovanna Nicodano & Sudipto Bhattacharya, 1999. "Insider Trading, Investment and Liquidity: A Welfare Analysis," FMG Discussion Papers dp334, Financial Markets Group.
- 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.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Gorton, Gary & Pennacchi, George, 1990. " Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
- George, Thomas J & Kaul, Gautam & Nimalendran, M, 1994. " Trading Volume and Transaction Costs in Specialist Markets," Journal of Finance, American Finance Association, vol. 49(4), pages 1489-1505, September.
- Kerry Back & C. Henry Cao & Gregory A. Willard, 2000. "Imperfect Competition among Informed Traders," Journal of Finance, American Finance Association, vol. 55(5), pages 2117-2155, October.
- 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 1031-59, July.
- Fishe, Raymond P. H. & Robe, Michel A., 2004. "The impact of illegal insider trading in dealer and specialist markets: evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 71(3), pages 461-488, March.
- 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 1437-78, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabrina Marino).
If references are entirely missing, you can add them using this form.