Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319992 
Authors: 
Year of Publication: 
2017
Series/Report no.: 
CASMEF Working Paper Series No. WP 2017/01
Publisher: 
LUISS Guido Carli, Department of Economics and Finance, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract: 
In an asset market with explicit trading rules we characterize the trading activity of an ambiguity-averse insider who faces Knightian uncertain over other market participants' beliefs and implements a robust trading strategy. Such insider employs a max-min choice mechanism, so that in any round of trading she selects as her market order that which maximizes her expected profits against those market beliefs which penalize her most. Her trading strategy is equivalent to that of a risk-averse insider who does not face any Knightian uncertain and possesses risk-sensitive recursive preferences. As she finds it optimal to trade more aggressively and reveal her private information at a faster pace than her risk-neutral (expected-profit maximizer) counterpart, we find that ambiguity-aversion is beneficial to the efficiency of the market.
Subjects: 
Insider Trading
Market Efficiency
Robust Trading
Ambiguity-aversion
Risk-aversion
JEL: 
D82
G14
Document Type: 
Working Paper

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