Strategic trading with transaction cost in the long run

Deqing Zhou

Finance Research Letters, 2020, vol. 32, issue C

Abstract: Based on Holden and Subrahmanyam (1994), this work examines how the transaction cost imposed on insiders affects the strategic trading and the consequences. We find that with transaction cost, insiders refrain their trading and prices are less efficient in reflecting the private information. Interestingly, the noise traders’ losses increase with the insiders’ transaction cost when insiders are either competitive or risk averse, since the transaction cost can soften the competition among insiders and can change insiders’ risk-sharing allocation across periods.

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:finlet:v:32:y:2020:i:c:s1544612318306202

DOI: 10.1016/j.frl.2018.12.035

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