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Insider Trading, Investment and Liquidity

Author

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  • 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

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    1. Repullo, Rafael, 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.
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    Citations

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    Cited by:

    1. Giovanni Cespa, 2007. "Information Sales and Insider Trading with Long-lived Information," CSEF Working Papers 174, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. 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.

    More about this item

    Keywords

    Incomplete Markets; Portfolio Choice; Private Information; Rational Expectations;

    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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