Public Disclosure of Trades by Corporate Insiders in Financial Markets and Tacit Coordination
Steven J. Huddart
Pennsylvania State University, University Park - Department of Accounting
John S. Hughes
University of California at Los Angeles
Carolyn B. Levine
Carnegie Mellon University - David A. Tepper School of Business
April 22, 1998
Like Cournot competitors in product markets, financial market insiders with common private information trade more aggressively than a monopolist with the same information, and thereby dissipate expected profits. Where the same insiders repeatedly receive private information, they may tacitly collude to limit trades and increase profits. Present rules requiring public reporting of insider trades (unintendedly) may allow insiders to improve upon aggregate volume or price in monitoring each other's trades, thereby facilitating collusion. Relative to product markets, the presence of a strategic market maker complicates the equilibrium. The results imply regulators may reduce tacit collusion by not publicizing insider trades.
Number of Pages in PDF File: 34
JEL Classification: G28, K22, M41working papers series
Date posted: June 1, 1998
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