[We show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal. We examine a model in which an insider/manager allocates resources on the basis of his private information and outside information conveyed through the secondary-market price of the firm's shares. If the manager is allowed to trade, he will compete with informed outsiders, reducing the equilibrium quality of outside information. While the benefits to production of outside information are the same for society and entrepreneurs, we show that the social and private costs are different. Thus, entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed.]

[We show that the positive volatility-volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions. Thus, it is the occurrence of transactions per se, and not their size, that generates volatility; trade size has no information beyond that contained in the frequency of transactions. Our results suggest that theoretical research needs to entertain scenarios in which (i) both the frequency and size of trades are endogenously determined, yet (ii) the size of trades has no information content beyond that contained in the number of transactions.]

We show that the positive volatility-volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions. Thus, it is the occurrence of transactions per se, and not their size, that generates volatility; trade size has no information beyond that contained in the frequency of transactions. Our results suggest that theoretical research needs to entertain scenarios in which (1) both the frequency and size of trades are endogenously determined, yet (2) the size of trades has no information content beyond that contained in the number of transactions. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.