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Insider Trading With a Random Deadline
Author(s) -
Caldentey René,
Stacchetti Ennio
Publication year - 2010
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta7884
Subject(s) - insider , insider trading , asset (computer security) , value (mathematics) , financial economics , economics , microeconomics , economic rent , business , econometrics , finance , computer science , mathematics , statistics , computer security , political science , law
We consider a model of strategic trading with asymmetric information of an asset whose value follows a Brownian motion. An insider continuously observes a signal that tracks the evolution of the asset's fundamental value. The value of the asset is publicly revealed at a random time. The equilibrium has two regimes separated by an endogenously determined time T . In [0, T ), the insider gradually transfers her information to the market. By time T , all her information has been transferred and the price agrees with the market value of the asset. In the interval [ T , ∞), the insider trades large volumes and reveals her information immediately, so market prices track the market value perfectly. Despite this market efficiency, the insider is able to collect strictly positive rents after T .