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Strong-Form Efficiency with Monopolistic Insiders

Minh Triet Chau¹; Dimitri Vayanos²

¹ École Supérieure des Sciences Économiques et Commerciales · ² London School of Economics and Political Science

We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with a competitive market maker and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. The insider chooses, however, to reveal the information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider's profits do not converge to zero.

DOI

10.1093/rfs/hhl029

Volume

21 (5)

Pages

2275-2306

Language

en

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BibTeX

Sources

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