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Transaction Prices When Insiders Trade Portfolios

Bossaerts, Peter (1993) Transaction Prices When Insiders Trade Portfolios. Social Science Working Paper, 835. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20170825-151049012

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Abstract

Statistical properties of transaction prices are investigated in the context of a multi-asset extension of Kyle [1985]. Under the restriction that market makers cannot condition prices on volume in other markets, Kyle's model is shown to be consistent with well-documented lack of predictability of individual asset prices, positive autocorrelation of index returns, and low cross-sectional covariance. The covariance estimator of Cohen, e.a. [1983] provides the right estimates of the "true" covariance. However, Kyle's model cannot explain the asymmetry and rank deficiency of the matrix of first-order autocovariances. Asymmetry obtains when the insider limits his strategies to trading a set of pre-determined portfolios. If these portfolios are well-diversified, the matrix of first-order autocovariances is asymptotically rank-deficient. If the insider uses only one portfolio (as when "timing the market"), its asymptotic rank equals one, conform to the empirical results in Gibbons and Ferson [1985].


Item Type:Report or Paper (Working Paper)
ORCID:
AuthorORCID
Bossaerts, Peter0000-0003-2308-2603
Additional Information:The author is grateful for comments from participants to the 1993 American Finance Association meetings.
Group:Social Science Working Papers
Subject Keywords:Transaction Prices, Asymmetric Information, Asset Return Predictability, Well-Diversified Portfolios
Series Name:Social Science Working Paper
Issue or Number:835
Record Number:CaltechAUTHORS:20170825-151049012
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170825-151049012
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80810
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:28 Aug 2017 20:49
Last Modified:03 Oct 2019 18:35

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