Security Analysis and Trading Patterns When Some Investors Receive Information Before Others





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    • Hirshleifer is from the Anderson Graduate School of Management, University of California at Los Angeles, Subrahmanyam is from the Graduate School of Business, Columbia University, and the Anderson Graduate School of Management, University of California at Los Angeles, and Titman is from Boston College. We thank three anonymous referees, the editor (René Stulz), Anat Admati, Yakov Amihud, Arnoud Boot, Michael Brennan, Henry Cao, Tarun Chordia, Shane Corwin (the copy editor), Doug Diamond, Mike Fishman, Paolo Fulghieri, Simon Gervais, Joel Hasbrouck, Gur Huberman, Eric Hughson, Francis Longstaff, Barbara McCutcheon, S. Nagarajan, Nadav Peles, Matt Spiegel, Brett Trueman, Jean-Luc Vila, Russ Wermers, and participants at the New York University, University of California at Berkeley, University of Maryland, University of Michigan, University of Iowa, and University of Chicago finance seminar series, the meetings of the 1993 Western Finance Association, the 1993 Summer Econometric Society, and the 1994 Winter Econometric Society for helpful comments and suggestions.


In existing models of information acquisition, all informed investors receive their information at the same time. This article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others. The model implies that, under some conditions, investors will focus only on a subset of securities (“herding”), while neglecting other securities with identical exogenous characteristics. In addition, the model is consistent with empirical correlations that are suggestive of oft-cited trading strategies such as profit taking (short-term position reversal) and following the leader (mimicking earlier trades).