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Title: Insider Trading, Investment and Liquidity

Author(s): Sudipto Bhattacharya and Giovanna Nicodano

Publication Date: October 1999

Keyword(s): Incomplete Markets, Portfolio Choice, Private Information and Rational Expectations

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Bhattacharya, S and Nicodano, G. 1999. 'Insider Trading, Investment and Liquidity'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2251