Strong-Form Efficiency with Monopolistic Insiders

Minh Chau and Dimitri Vayanos

The Review of Financial Studies, 2008, vol. 21, issue 5, 2275-2306

Abstract: We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with competitive market makers and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. Thus, the insider's information is 'long-lived.' Surprisingly, however, the monopolistic insider chooses to reveal her information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider's profits do not converge to zero. , Oxford University Press.

Date: 2008
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