Public disclosure and dissimulation of insider trades

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

Research output: Contribution to journalArticle

96 Citations (Scopus)

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

Fingerprint

Public disclosure
Insider
Profit
Rational expectations
Trading strategies
Manipulation
Insider trading
Price discovery
Disclosure
Rent-seeking
Rationale

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Huddart, Steven J. ; Hughes, John S. ; Levine, Carolyn B. / Public disclosure and dissimulation of insider trades. In: Econometrica. 2001 ; Vol. 69, No. 3. pp. 665-681.
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Public disclosure and dissimulation of insider trades. / Huddart, Steven J.; Hughes, John S.; Levine, Carolyn B.

In: Econometrica, Vol. 69, No. 3, 01.01.2001, p. 665-681.

Research output: Contribution to journalArticle

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