We propose a portfolio optimization approach to identifying private information. In our model, investors are exposed to liquidity and private information shocks and optimize their trading across stocks taking into account price impact (Kyle's Lambda). We obtain a very simple expression for a...

We find that weekend, holiday and overnight trading breaks generate excessive perceived risk in the option markets, presumably due to asymmetric information, which, in turn, encourages uninformed option traders to postpone trading. This perceived risk subsides after two days accompanied by an...

We analyze a model where different traders are informed of different fundamentals that affect the security value. We identify a source for strategic complementarities in trading and information acquisition: The aggressive trading on information about one fundamental reduces the uncertainty in...

In contrary to previous literature, we show in the Grossman-Stiglitz model of noisy rational expectation that the social value of asymmetric information can be improved with more informative prices when being informed is uncertain. Investors always benefit from a privately payoff-relevant...

We study information acquisition in dealer markets. We first identify a one-sided strategic complementarity in information acquisition: the more informed traders are, the larger market makers' gain from becoming informed. When quotes are observable, this effect in turn induces a strategic...

We study how dynamic research affects information acquisition in financial markets. In our strategic trading model, the trader performs costly research to generate private information but does not always succeed. Optimal research activity responds to market conditions and generates novel...

We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and easily computable measure of information asymmetry in security markets. We use a simple microstructure model to demonstrate that VCV is strictly increasing in the...