Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 5, 2019 erstellt
Description:
We examine the welfare costs of informed trade in a new sequential trade model with elastic uninformed traders. Welfare losses occur when the liquidity costs of executing a trade exceed the potential gains from the trade. With long-lived private information, more informed traders lead to better liquidity and less welfare losses because the benefits of faster price discovery outweigh the costs of wider initial spreads. For short-lived information, this tradeoff does not materialize and welfare losses increase with the amount of informed trade. Our findings suggest that regulation of informed trade should consider the horizon of private information