Information and Equilibrium with Inside Traders

Leonard Mirman and Larry Samuelson

Economic Journal, 1989, vol. 99, issue 395, 152-67

Abstract: This paper examines a market in which an informed agent or insider trades with uninformed agents whose expectations are conditioned on the information revealed by prices. The authors find that insiders can capitalize on their private information, with those receiving favorable (unfavorable) information tending to buy (sell) the risky asset. However, the ability of uninformed agents to infer information from market prices causes the insider to moderate his actions. Insiders with favorable (unfavorable) information reveal this information gradually by initially buying less (selling less) of the risky asset than would be the case if such learning did not occur. Copyright 1989 by Royal Economic Society.

Date: 1989
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