We extend Kyle’s [Kyle, A. S. 1985. “Continuous Auctions and Insider Trading.” Econometrica 53, 1315– 1335] analysis of sequential auction markets to the case in which the insider is risk-averse and discounts her trading profits as her private information is long-lived. We see that time-discounting exacerbates the impact of risk-aversion on the optimal trading strategy of the insider. Ceteris paribus, a larger degree of risk-aversion or a smaller time-discount factor induces the informed agent to consume more rapidly her informational advantage increasing the liquidity and efficiency of the securities market.
Insider trading in sequential auction markets with risk-aversion and time-discounting
VITALE, Paolo
2017-01-01
Abstract
We extend Kyle’s [Kyle, A. S. 1985. “Continuous Auctions and Insider Trading.” Econometrica 53, 1315– 1335] analysis of sequential auction markets to the case in which the insider is risk-averse and discounts her trading profits as her private information is long-lived. We see that time-discounting exacerbates the impact of risk-aversion on the optimal trading strategy of the insider. Ceteris paribus, a larger degree of risk-aversion or a smaller time-discount factor induces the informed agent to consume more rapidly her informational advantage increasing the liquidity and efficiency of the securities market.File in questo prodotto:
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