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Using privileged information to manipulate markets: insiders, gurus, and credibility

Benabou, R.; Laroque, G.; (1992) Using privileged information to manipulate markets: insiders, gurus, and credibility. Quarterly Journal of Economics , 107 (3) pp. 921-958. Green open access

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Abstract

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 [1985] 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.

Type:Article
Title:Using privileged information to manipulate markets: insiders, gurus, and credibility
Open access status:An open access version is available from UCL Discovery
Publisher version:http://www.mitpressjournals.org/loi/qjec
Language:English
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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