Public disclosure and dissimulation of insider trades

Steven Huddart, John S. Hughes, Carolyn B. Levine

Research output: Contribution to journalArticle

100 Scopus citations

Abstract

Regulation requiring insiders to publicly disclose their stock trades after the fact complicates the trading decisions of informed, rent-seeking insiders. Given this requirement, we present an insider's equilibrium trading strategy in a multiperiod rational expectations framework. Relative to Kyle (1985), price discovery is accelerated and insider profits are lower. The strategy balances immediate profits from informed trades against the reduction in future profits following trade disclosure and, hence, revelation of some of the insider's information. Our results offer a novel rationale for contrarian trading: dissimulation, a phenomenon distinct from manipulation, may underlie insiders' trading decisions.

Original languageEnglish (US)
Pages (from-to)665-681
Number of pages17
JournalEconometrica
Volume69
Issue number3
DOIs
StatePublished - Jan 1 2001

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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