Insider Trading, Investment, and Liquidity: A Welfare Analysis

Sudipto Bhattacharya and Giovanna Nicodano

Journal of Finance, 2001, vol. 56, issue 3, 1141-1156

Abstract: We compare equilibrium trading outcomes with and without participation by an informed insider, assuming inflexible ex ante aggregate investment choices by agents. Noise trading arises from aggregate uncertainty regarding other agents' intertemporal consumption preferences. The welfare levels of outsiders can thus be ascertained. The allocations without insider trading are not ex ante Pareto efficient, because our model differs from standard ones with negative exponential utility functions and normal returns. We characterize the circumstances under which the revelation of payoff‐relevant information via prices—arising from insider trading—benefits outsiders with stochastic liquidity needs, by improving risk‐sharing among them.

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
https://doi.org/10.1111/0022-1082.00359

Related works:
Working Paper: Insider trading, investment and liquidity: a welfare analysis (1999)
Working Paper: Insider Trading, Investment and Liquidity: A Welfare Analysis (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:56:y:2001:i:3:p:1141-1156

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().