Public Disclosure and Dissimulation of Insider Trades

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

doi:10.2139/ssrn.235394

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Public Disclosure and Dissimulation of Insider Trades

28 Pages Posted: 30 Jul 2000

See all articles by Steven J. Huddart

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Carolyn B. Levine

Carnegie Mellon University - David A. Tepper School of Business

There are 2 versions of this paper

Date Written: May 2000

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 phenomenom distinct from manipulation, may underlie insiders' trading decisions.

Keywords: Insider trading, price discovery, liquidity, securities regulation

JEL Classification: G28, K22, M41

Suggested Citation: Suggested Citation

Huddart, Steven J. and Hughes, John S. and Levine, Carolyn B., Public Disclosure and Dissimulation of Insider Trades (May 2000). Available at SSRN: https://ssrn.com/abstract=235394 or http://dx.doi.org/10.2139/ssrn.235394