EconPapers    
Economics at your fingertips  
 

Information Leakages, Distribution of Profits from Informed Trading, and Last Mover Advantage

Andrey Pankratov
Additional contact information
Andrey Pankratov: University of Lugano; Swiss Finance Institute

No 20-76, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: I model a market in which a trader with superior information about an asset is subject to careful scrutiny by another agent who immediately observes the trading decisions of the informed agent with some noise and engages in (klepto)parasitic behavior by imicking the informed trader and trading on her own behalf (this can be interpreted as a broker or a high-frequency trader). I show that if the precision with which the parasitic trader observes the informed trader’s decisions is high enough, then the parasitic trader absorbs a dominant fraction of the expected abnormal profits coming from informed trading. My theory is able to explain why the percentage abnormal returns on the trades of corporate insiders are high while dollar returns on these trades can be quite moderate. Additionally, I explain through my model a sudden upsurge of HFT activity during a five-year period 2004-2009.

Keywords: Asymmetric information; Information leakages; Market microstructure; Market efficiency; Equilibrium; HFT; Sharing profits; Short-swing profit rule (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2020-08
New Economics Papers: this item is included in nep-cfn, nep-mst and nep-ore
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3681007 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2076

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().

 
Page updated 2024-05-23
Handle: RePEc:chf:rpseri:rp2076