Weak Insider Trading and Behavioral Finance

Luciano Campi () and Matteo del Vigna
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Luciano Campi: FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CREST - EDF R&D - EDF R&D - EDF - EDF, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Matteo del Vigna: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, DipStat - Department of Statistics and Applied Mathematics - UniPi - University of Pisa [Italy] = Università di Pisa [Italia] = Université de Pise [Italie]

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Abstract: In this paper, we study the optimal portfolio selection problem for weakly informed traders in the sense of Baudoin (2002). Apart from expected utility maximizers, we consider investors with other preference paradigms. In particular, we consider agents following cumulative prospect theory as developed by Tversky and Kahneman (1992) as well as Yaari's dual theory of choice (Yaari (1987)). We solve the corresponding optimization problems, in both non-informed and informed case, i.e. when the agent has an additional weak information. Finally, comparison results among investors with different preferences and information sets are given, together with explicit examples. In particular, the insider's gain, i.e. the difference between the optimal values of an informed and a non informed investor, is explicitly computed.

Date: 2011-12-05
Note: View the original document on HAL open archive server: https://hal.science/hal-00566185v3
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