Benabou, R. and Laroque, G. (1992) Using privileged information to manipulate markets: insiders, gurus, and credibility. Quarterly Journal of Economics , 107 (3) pp. 921-958.
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Access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements. The fact that privileged information is noisy interferes with the public's attempts to learn whether such announcements are honest; it allows opportunistic individuals to manipulate prices repeatedly, without ever being fully found out. This leads us to extend Sobel's  model of strategic communication to the case of noisy private signals. Our results show that when truthfulness is not easily verifiable, restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices.
|Title:||Using privileged information to manipulate markets: insiders, gurus, and credibility|
|Open access status:||An open access version is available from UCL Discovery|
|Additional information:||© 1992 The MIT Press|
|UCL classification:||UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics|
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