Strategic Insider Trading with Imperfect Information: A Trading Volume Analysis
A 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.
Volume (Year): 94 (2004)
Issue (Month): 6 (November-December)
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