IDEAS home Printed from
   My bibliography  Save this article

The Efficient Market Hypothesis and Insider Trading on the Stock Market


  • Laffont, Jean-Jacques
  • Maskin, Eric S


The authors study behavior of a large trader with private information about the mean of an asset with a risky return. They argue that if the variability of the return is not too great, typically the trader will find it desirable to ensure that the market price does not reveal his information, that is, that a "pooling" equilibrium arises. Such an equilibrium has the advantage of avoiding the incentive constraints that arise in "separating" equilibria, where information can be inferred from prices. Thus, the efficient market hypothesis may well fail if there is imperfect competition. Despite the uninformativeness of prices, the other (competitive) traders are also better off in the pooling equilibrium than in any separating equilibrium, again if one assumes variability. Copyright 1990 by University of Chicago Press.

Suggested Citation

  • Laffont, Jean-Jacques & Maskin, Eric S, 1990. "The Efficient Market Hypothesis and Insider Trading on the Stock Market," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 70-93, February.
  • Handle: RePEc:ucp:jpolec:v:98:y:1990:i:1:p:70-93

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to subscribers. See for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    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:ucp:jpolec:v:98:y:1990:i:1:p:70-93. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.