Market Fragmentation, Dissimulation, and the Disclosure of Insider Trades
56 Pages Posted: 3 Dec 2016 Last revised: 6 Jun 2017
Date Written: May 2017
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: Suggested Citation