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RFS Advance Access published online on July 27, 2006
Review of Financial Studies, doi:10.1093/rfs/hhl029
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Article

Strong-Form Efficiency with Monopolistic Insiders

Minh Chau 1 and Dimitri Vayanos 2 *
1 ESSEC Business School
2 Department of Accounting and Finance, London School of Economics, Houghton Street, London WC2A 2AE, UK


  Abstract

We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with a competitive market maker and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. The insider chooses, however, to reveal the information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider’s profits do not converge to zero.


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