Informed trading and stock market efficiency

Taneli M�kinen ()
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Taneli M�kinen: Bank of Italy
Authors registered in the RePEc Author Service: Taneli Mäkinen ()

No 992, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The information content of stock prices is analysed without imposing strong restrictions on traders' preferences and the distribution of dividends. Noise in the information contained in equilibrium prices arises from endogenous asset supply, which offsets price movements due to informed trading. The informativeness of stock prices increases with the wealth of the informed traders and decreases with the risk-free rate, as stock prices respond more strongly to information held by informed traders when they take larger positions in stocks.

Keywords: asset markets; asymmetric information; rational expectations equilibrium (search for similar items in EconPapers)
JEL-codes: D53 D82 G14 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cfn and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_992_14

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