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Strategic Insider Trading With Imperfect Information: a Trading Volume Analysis

Rivista di Politica Economica, Vol. 9, No. 12, 2004

Posted: 21 Mar 2006

See all articles by Andrea M Buffa

Andrea M Buffa

University of Colorado at Boulder - Leeds School of Business

Abstract

A model of insider trading is used to analyze the behavior of trading volume in financial markets characterized by asymmetric information. This model extends the one in Bhattacharya and Nicodano (2001) by introducing competition among informed traders and imperfection of their private information. Contrary to the broad implications of adverse selection models and according to some empirical studies, this paper shows that trading volume is higher when the insiders are active in the market. A higher level of outsiders' risky investment, due to an improved risk sharing among them, leads to a higher level of trading.

Keywords: insider trading, asymmetric information, trading volume

JEL Classification: G14, D82, C72

Suggested Citation

Buffa, Andrea M, Strategic Insider Trading With Imperfect Information: a Trading Volume Analysis. Rivista di Politica Economica, Vol. 9, No. 12, 2004 , Available at SSRN: https://ssrn.com/abstract=889004

Andrea M Buffa (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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