Citation

Discussion Paper Details

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Title: Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades

Author(s): Giovanni Cespa and Paolo Colla

Publication Date: December 2016

Keyword(s): Disclosure of Insider Trades, Dissimulation, fragmentation, Informational efficiency, Market transparency and Price comovement

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Cespa, G and Colla, P. 2016. 'Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11690