Insider Trading With a Random Deadline
René Caldentey, Ennio Stacchetti
Econometrica · 2010 · Volume 78 · Issue 1
Abstract
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 timeT. In [0,T), the insider gradually transfers her information to the market. By timeT, 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 afterT.
Keywords
Insider trading, Kyle model, market microstructure, asset pricing
Enable JavaScript for citation tools and additional paper interactions.