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Information acquisition, market professional and discretionary liquidity trading

Author

Listed:
  • Ma, Yu
  • Liu, Hong
  • Yang, Qingshan

Abstract

We analyze an insider trading strategy and market professionals’ information acquisition strategies, and explore their impact on market liquidity and price efficiency in endogenous noise trading. Our findings highlight the negative precision effect on market professionals’ information acquisition. With an increase in market professionals, two opposing effects emerge on market liquidity and price efficiency: the strategic complementarity effect and the precision effect. However, the negative precision effect predominates, which impairs market liquidity and price efficiency. Furthermore, enhancing the ex-ante precision of the risky asset or adjusting liquidity compensation reduces market professionals’ involvement in information acquisition, leading to diminished price efficiency.

Suggested Citation

  • Ma, Yu & Liu, Hong & Yang, Qingshan, 2024. "Information acquisition, market professional and discretionary liquidity trading," Finance Research Letters, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finlet:v:68:y:2024:i:c:s1544612324010699
    DOI: 10.1016/j.frl.2024.106039
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Insider trading; Information acquisition; Discretionary liquidity trading; Price efficiency;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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