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Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades

56 Pages Posted: 3 Dec 2016 Last revised: 6 Jun 2017

Giovanni Cespa

Cass Business School; Centre for Economic Policy Research (CEPR)

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Multiple version iconThere are 2 versions of this paper

Date Written: May 2017

Abstract

We study the impact of informational integration (i.e., availability of pre- and post-trade information) in a dynamic model where a security is traded in two venues by an insider together with noise traders, and prices are set by competitive dealers in each location. We consider two alternative disclosure regimes, in that the insider may or not be forced to disclose his trades upon execution. We find that in the absence of disclosure, informational integration impairs price efficiency, as it lessens price discovery, and may also reduce price comovement. With mandatory disclosure, informational integration leaves price discovery unaffected, even though it reduces the extent to which prices comove as a response to common fundamental shocks, due to the insider’s correlated dissimulation strategy.

Keywords: Fragmentation, Informational Integration, Disclosure of Insider Trades, Dissimulation, Market transparency, Informational efficiency, Price comovement

JEL Classification: G10, G12, G14

Suggested Citation

Cespa, Giovanni and Colla, Paolo, Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades (May 2017). Available at SSRN: https://ssrn.com/abstract=2879273

Giovanni Cespa

Cass Business School ( email )

106, Bunhill Row
London, EC1Y 8TZ
Great Britain
+44(0)2040708704 (Phone)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paolo Colla (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

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