Working Paper: CEPR ID: DP2251
Authors: Sudipto Bhattacharya; Giovanni Nicodano
Abstract: We compare competitive equilibrium outcomes with and without trading by a privately informed 'monopolistic' insider, in a model with real investment portfolio choices ex ante, and noise trading generated by aggregate uncertainty regarding other agents' intertemporal consumption preferences. The welfare implications of insider trading for the ex ante expected utilities of outsiders are analyzed. The role of interim information revelation due to insider trading, in improving the risk-sharing among outsiders with stochastic liquidity needs, is examined in detail.
Keywords: portfolio choice; incomplete markets; private information; rational expectations
JEL Codes: D52; D82; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Insider trading (G14) | Improved interim stock prices (G19) |
| Improved interim stock prices (G19) | Enhanced consumption allocations for non-insiders (E21) |
| Interim information revelation (D83) | Improved risk-sharing among outsiders (G19) |
| Improved risk-sharing among outsiders (G19) | Increased expected utilities (D11) |