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Strong-form efficiency with monopolistic insiders

Chau, Minh and Vayanos, Dimitri (2008) Strong-form efficiency with monopolistic insiders. Review of Financial Studies, 21 (5). pp. 2275-2306. ISSN 0893-9454

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Abstract

We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with competitive market makers and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. Thus, the insider’s information is “long-lived.” Surprisingly, however, the monopolistic insider chooses to reveal her information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider’s profits do not converge to zero.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/
Additional Information: © 2006 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 30 Oct 2010 11:06
URL: http://eprints.lse.ac.uk/29780/

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