Strategic Insider Trading and Its Consequences for Outsiders: Evidence From the Eighteenth Century
Motivation Information asymmetry is inherent to trading and will always remain a threat to the fairness and integrity of financial markets. It is therefore important to understand how informed investors exploit their information advantage and how their strategic trading behavior affects uninformed investors. In our paper Strategic Insider Trading and its Consequences for Outsiders: Evidence […]
Mathijs Cosemans is an Associate Professor of Finance at Erasmus University, and Rik Frehen is a Professor of Finance at Tilburg University. This post is based on their recent article forthcoming in the Journal of Financial Economics.
Motivation
Information asymmetry is inherent to trading and will always remain a threat to the fairness and integrity of financial markets. It is therefore important to understand how informed investors exploit their information advantage and how their strategic trading behavior affects uninformed investors. In our paper Strategic Insider Trading and its Consequences for Outsiders: Evidence from the Eighteenth Century, which is published in the Journal of Financial Economics, we answer these questions using unique hand-collected data from the early eighteenth-century London stock market. Because there were no legal restrictions on insider trading in this era, we can better identify the value of private information and the trading behavior of insiders.
