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'Those Who Know Most': Insider Trading in 18th c. Amsterdam

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  • Peter Koudijs

Abstract

This paper studies how private information is incorporated into prices, using a unique setting from the 18th century that, in many dimensions, is simpler and closer to stylized models of price discovery than modern-day markets. Specifically, the paper looks at a number of English securities that were traded in both London and Amsterdam. Relevant information about these securities originated in London and was sent to Amsterdam on board of official mail packet boats. Anecdotal evidence suggests that these ships carried both public news and private information. They sailed only twice a week, and in adverse weather could not sail at all. The paper exploits periods of exogenous market segmentation to identify the impact of private information. The evidence is consistent with a Kyle (1985) model in which informed agents trade strategically. Most importantly, the speed of information revelation in Amsterdam depended on how long insiders expected it would take for the private signal to become public. As a result of this strategic behavior, private information was only slowly revealed to the market as a whole. This price discovery was economically important: private signals had almost as much impact on prices as public information shocks.

Suggested Citation

  • Peter Koudijs, 2013. "'Those Who Know Most': Insider Trading in 18th c. Amsterdam," NBER Working Papers 18845, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18845
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    References listed on IDEAS

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    1. Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654.
    2. Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2002. "Dynamic Volume-Return Relation of Individual Stocks," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1005-1047.
    3. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. " Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-270, March.
    4. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Oxford University Press, vol. 56(3), pages 317-355.
    5. Paul C. Tetlock, 2010. "Does Public Financial News Resolve Asymmetric Information?," Review of Financial Studies, Society for Financial Studies, vol. 23(9), pages 3520-3557.
    6. Vega, Clara, 2006. "Stock price reaction to public and private information," Journal of Financial Economics, Elsevier, vol. 82(1), pages 103-133, October.
    7. Holden, Craig W. & Subrahmanyam, Avanidhar, 1994. "Risk aversion, imperfect competition, and long-lived information," Economics Letters, Elsevier, vol. 44(1-2), pages 181-190.
    8. Back, Kerry, 1992. "Insider Trading in Continuous Time," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    9. Hendershott, Terrence & Livdan, Dmitry & Schürhoff, Norman, 2015. "Are institutions informed about news?," Journal of Financial Economics, Elsevier, vol. 117(2), pages 249-287.
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • N2 - Economic History - - Financial Markets and Institutions

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