Public Disclosure of Trades by Corporate Insiders in Financial Markets and Tacit Coordination

34 Pages Posted: 1 Jun 1998

See all articles by Steven J. Huddart

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

John S. Hughes

University of California at Los Angeles

Carolyn B. Levine

Carnegie Mellon University - David A. Tepper School of Business

Date Written: April 22, 1998

Abstract

Like Cournot competitors in product markets, financial market insiders with common private information trade more aggressively than a monopolist with the same information, and thereby dissipate expected profits. Where the same insiders repeatedly receive private information, they may tacitly collude to limit trades and increase profits. Present rules requiring public reporting of insider trades (unintendedly) may allow insiders to improve upon aggregate volume or price in monitoring each other's trades, thereby facilitating collusion. Relative to product markets, the presence of a strategic market maker complicates the equilibrium. The results imply regulators may reduce tacit collusion by not publicizing insider trades.

JEL Classification: G28, K22, M41

Suggested Citation

Huddart, Steven J. and Hughes, John S. and Levine, Carolyn B., Public Disclosure of Trades by Corporate Insiders in Financial Markets and Tacit Coordination (April 22, 1998). Available at SSRN: https://ssrn.com/abstract=93662 or http://dx.doi.org/10.2139/ssrn.93662

Steven J. Huddart (Contact Author)

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

John S. Hughes

University of California at Los Angeles ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-794-9553 (Phone)
310-267-2193 (Fax)

Carolyn B. Levine

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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