Weak Insider Trading and Behavioral Finance | Zendy

Luciano Campi | Zendy; Matteo Del Vigna | Zendy

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Weak Insider Trading and Behavioral Finance

Author(s) -

Luciano Campi,

Matteo Del Vigna

Publication year - 2012

Publication title -

siam journal on financial mathematics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.251

H-Index - 33

ISSN - 1945-497X

DOI - 10.1137/110824693

Subject(s) - expected utility hypothesis , prospect theory , preference , mathematical economics , portfolio , economics , behavioral economics , insider , risk aversion (psychology) , dual (grammatical number) , insider trading , modern portfolio theory , econometrics , microeconomics , financial economics , finance , art , literature , political science , law

In this paper, we study the optimal portfolio selection problem for weakly informed traders in the sense of Baudoin (2002). Apart from expected utility maximizers, we consider investors with other preference paradigms. In particular, we consider agents following cumulative prospect theory as developed by Tversky and Kahneman (1992) as well as Yaari's dual theory of choice (Yaari (1987)). We solve the corresponding optimization problems, in both non-informed and informed case, i.e. when the agent has an additional weak information. Finally, comparison results among investors with different preferences and information sets are given, together with explicit examples. In particular, the insider's gain, i.e. the difference between the optimal values of an informed and a non informed investor, is explicitly computed.

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