Insider, outsider and information heterogeneity

Deqing Zhou and Wenjie Wang

The North American Journal of Economics and Finance, 2020, vol. 53, issue C

Abstract: In financial markets, although the insider has superior information relative to the outsider, the outsider may possess some information the insider can’t precisely observe. This work investigates the impacts of information heterogeneity between the insider and outsider based on Foster and Viswanathan (1994). It shows that the less the insider knows about the outsider, the more she commits to aggressive trading, enabling her to earn more at the cost of outsider’s losses. Meanwhile, information heterogeneity improves the liquidity and benefits noise traders.

Keywords: Insider; Outsider; Information heterogeneity (search for similar items in EconPapers)
JEL-codes: C72 D82 G14 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:53:y:2020:i:c:s1062940820300905

DOI: 10.1016/j.najef.2020.101193

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