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Insider Trading, Investment and Liquidity

Author

Listed:
  • Bhattacharya, Sudipto
  • Nicodano, Giovanna

Abstract

We compare competitive equilibrium outcomes with and without trading by a privately informed 'monopolistic' insider, in a model with real investment portfolio choices ex ante, and noise trading generated by aggregate uncertainty regarding other agents' intertemporal consumption preferences. The welfare implications of insider trading for the ex ante expected utilities of outsiders are analyzed. The role of interim information revelation due to insider trading, in improving the risk-sharing among outsiders with stochastic liquidity needs, is examined in detail.

Suggested Citation

  • Bhattacharya, Sudipto & Nicodano, Giovanna, 1999. "Insider Trading, Investment and Liquidity," CEPR Discussion Papers 2251, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2251
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    References listed on IDEAS

    as
    1. Rafael Repullo, 1999. "Some Remarks on Leland's Model of Insider Trading," Economica, London School of Economics and Political Science, vol. 66(263), pages 359-374, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Giovanni Cespa, 2008. "Information Sales and Insider Trading with Long‐Lived Information," Journal of Finance, American Finance Association, vol. 63(2), pages 639-672, April.
    2. James Dow, 2003. "Informed Trading, Investment, and Welfare," The Journal of Business, University of Chicago Press, vol. 76(3), pages 439-454, July.
    3. Andrea M. Buffa & Giovanna Nicodano, 2008. "Should Insider Trading be Prohibited when Share Repurchases are Allowed?," Review of Finance, European Finance Association, vol. 12(4), pages 735-765.

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    1. Dimitri Vayanos & Jiang Wang, 2012. "Market Liquidity -- Theory and Empirical Evidence," NBER Working Papers 18251, National Bureau of Economic Research, Inc.
    2. Sudipto Bhattacharya & Giovanna Nicodano, 2001. "Insider Trading, Investment, and Liquidity: A Welfare Analysis," Journal of Finance, American Finance Association, vol. 56(3), pages 1141-1156, June.
    3. Chi-Wen Lee & Zemin Lu, 2008. "Trading on inside information when there may be tippees," Review of Quantitative Finance and Accounting, Springer, vol. 31(3), pages 241-260, October.

    More about this item

    Keywords

    Incomplete Markets; Portfolio Choice; Private Information; Rational Expectations;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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