Insider Trading, Investment and Liquidity

Sudipto Bhattacharya and Giovanna Nicodano

No 2251, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We compare competitive equilibrium outcomes with and without trading by a privately informed 'monopolistic' insider, in a model with real investment portfolio choices ex ante, and noise trading generated by aggregate uncertainty regarding other agents' intertemporal consumption preferences. The welfare implications of insider trading for the ex ante expected utilities of outsiders are analyzed. The role of interim information revelation due to insider trading, in improving the risk-sharing among outsiders with stochastic liquidity needs, is examined in detail.

Keywords: Incomplete Markets; Portfolio Choice; Private Information; Rational Expectations (search for similar items in EconPapers)
JEL-codes: D52 D82 G14 (search for similar items in EconPapers)
Date: 1999-10
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Citations: View citations in EconPapers (2)

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