Strategic Insider Trading With Imperfect Information: a Trading Volume Analysis
Rivista di Politica Economica, Vol. 9, No. 12, 2004
Posted: 21 Mar 2006
Abstract
A model of insider trading is used to analyze the behavior of trading volume in financial markets characterized by asymmetric information. This model extends the one in Bhattacharya and Nicodano (2001) by introducing competition among informed traders and imperfection of their private information. Contrary to the broad implications of adverse selection models and according to some empirical studies, this paper shows that trading volume is higher when the insiders are active in the market. A higher level of outsiders' risky investment, due to an improved risk sharing among them, leads to a higher level of trading.
Keywords: insider trading, asymmetric information, trading volume
JEL Classification: G14, D82, C72
Suggested Citation: Suggested Citation