We gratefully acknowledge the feedback of David Pearce. We also thanks Markus Brunnermeier, Lasse Pedersen, and Debraj Ray and seminar participants at NYU.
Insider Trading With a Random Deadline
Article first published online: 8 FEB 2010
© 2010 The Econometric Society
Volume 78, Issue 1, pages 245–283, January 2010
How to Cite
Caldentey, R. and Stacchetti, E. (2010), Insider Trading With a Random Deadline. Econometrica, 78: 245–283. doi: 10.3982/ECTA7884
- Issue published online: 8 FEB 2010
- Article first published online: 8 FEB 2010
- Manuscript received April, 2008; final revision received July, 2009.
- Insider trading;
- Kyle model;
- market microstructure;
- asset pricing
We consider a model of strategic trading with asymmetric information of an asset whose value follows a Brownian motion. An insider continuously observes a signal that tracks the evolution of the asset's fundamental value. The value of the asset is publicly revealed at a random time. The equilibrium has two regimes separated by an endogenously determined time T. In [0, T), the insider gradually transfers her information to the market. By time T, all her information has been transferred and the price agrees with the market value of the asset. In the interval [T, ∞), the insider trades large volumes and reveals her information immediately, so market prices track the market value perfectly. Despite this market efficiency, the insider is able to collect strictly positive rents after T.