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Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades

Giovanni Cespa () and Paolo Colla ()

No 11690, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study insider trading disclosure in a dynamic model where a security is traded in two venues by an insider together with noise traders, and prices are set by competitive dealers in each location, under two alternative information regimes. We first posit that markets are informationally segmented, in that market makers are privy to the information gathered in their venue. In this case, fragmentation has no effect on the price discovery impact of insider trades' disclosure. We then allow market makers in a given venue to also observe the other venue's past period price as well as a noisy signal of that venue's order flow. In this case, we show that if markets are sufficiently pre-trade transparent, disclosure can impair price discovery.

Keywords: Disclosure of Insider Trades; Dissimulation; fragmentation; Informational efficiency; Market transparency; Price comovement (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-fmk and nep-mst
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