DP11690 Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades
|Author(s):||Giovanni Cespa, Paolo Colla|
|Publication Date:||December 2016|
|Keyword(s):||Disclosure of Insider Trades, Dissimulation, fragmentation, Informational efficiency, Market transparency, Price comovement|
|JEL(s):||G10, G12, G14|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11690|
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.