Information Sales and Insider Trading with Long-Lived Information



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      Cespa is with the CSEF, Università di Salerno, and CEPR. I thank Abhijit Banerjee, Giacinta Cestone, Antoine Faure-Grimaud, Thierry Foucault, Diego García, Piero Gottardi, Eugene Kandel, Stefano Lovo, Marco Pagano, Masako Ueda, Xavier Vives, Lucy White, as well as seminar participants at the Dauphine Workshop in Financial Market Quality (Euronext, Paris), the INSEAD-HEC-Delta-PricewaterhouseCoopers Workshop on Information and Financial Markets (INSEAD, Paris), the 1st CSEF–IGIER Symposium on Economics and Institutions (Anacapri), the XIV International Tor Vergata Conference on Banking and Finance (Rome), the 2004 CEPR European Summer Symposium in Financial Markets (Gerzensee), Università di Napoli, IGIER (Università Bocconi), University of Copenhagen, and Banca d'Italia for valuable comments. The remarks provided by an anonymous referee and the Associate Editor considerably enhanced the paper. Financial support from Fundación BBVA, Ministerio de Ciencia y Tecnología (BEC2002-00429 and Programa Ramón y Cajal), Ministero dell'Istruzione, dell'Università e della Ricerca, and Regione Campania is gratefully acknowledged. The paper received the award for the best paper presented at the Young Economist Session of the XIV International Tor Vergata Conference on Banking and Finance, Università di Roma Tor Vergata. The usual disclaimer applies.


Fundamental information resembles in many respects a durable good. Hence, the effects of its incorporation into stock prices depend on who is the agent controlling its flow. Like a durable goods monopolist, a monopolistic analyst selling information intertemporally competes against herself. This forces her to partially relinquish control over the information flow to traders. Conversely, an insider solves the intertemporal competition problem through vertical integration, thus exerting tighter control over the information flow. Comparing market patterns I show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades.