Insider trading with a random deadline

René Caldentey, Ennio Stacchetti

    Research output: Contribution to journalArticle

    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 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.

    Original languageEnglish (US)
    Pages (from-to)245-283
    Number of pages39
    JournalEconometrica
    Volume78
    Issue number1
    DOIs
    StatePublished - Jan 2010

    Fingerprint

    Deadline
    Insider trading
    Insider
    Assets
    Market value
    Brownian motion
    Asymmetric information
    Market price
    Fundamental values
    Market efficiency
    Strategic trading
    Rent
    Asset value

    Keywords

    • Asset pricing
    • Insider trading
    • Kyle model
    • Market microstructure

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Caldentey, R., & Stacchetti, E. (2010). Insider trading with a random deadline. Econometrica, 78(1), 245-283. https://doi.org/10.3982/ECTA7884

    Insider trading with a random deadline. / Caldentey, René; Stacchetti, Ennio.

    In: Econometrica, Vol. 78, No. 1, 01.2010, p. 245-283.

    Research output: Contribution to journalArticle

    Caldentey, R & Stacchetti, E 2010, 'Insider trading with a random deadline', Econometrica, vol. 78, no. 1, pp. 245-283. https://doi.org/10.3982/ECTA7884
    Caldentey R, Stacchetti E. Insider trading with a random deadline. Econometrica. 2010 Jan;78(1):245-283. https://doi.org/10.3982/ECTA7884
    Caldentey, René ; Stacchetti, Ennio. / Insider trading with a random deadline. In: Econometrica. 2010 ; Vol. 78, No. 1. pp. 245-283.
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