Insider Trading with Costly Information Acquisition
Revision of study 1992:11
Posted: 3 Jul 1998
Date Written: August 1994
A simple model with a riskless and a risky asset is used to analyze how the presence of insiders influence investor's utility. The incentive for outside investors to acquire information is derived. Equilibrium pricing of the risky asset depends on the share of investors being insiders as well as the endogenous acquisition by outsiders. Outsiders' information acquisition and insiders' information may be complements or substitutes from the point of view of information acquisition depending on the kind of information outsiders acquire.
JEL Classification: G12
Suggested Citation: Suggested Citation