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Abstract Based on Holden and Subrahmanyam (1994), this work examines how the transaction cost imposed on insiders affects the strategic trading and the consequences. We find that with transaction cost,… Click to show full abstract
Abstract Based on Holden and Subrahmanyam (1994), this work examines how the transaction cost imposed on insiders affects the strategic trading and the consequences. We find that with transaction cost, insiders refrain their trading and prices are less efficient in reflecting the private information. Interestingly, the noise traders’ losses increase with the insiders’ transaction cost when insiders are either competitive or risk averse, since the transaction cost can soften the competition among insiders and can change insiders’ risk-sharing allocation across periods.
Journal Title: Finance Research Letters
Year Published: 2020
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