XXV Edition

1-2 December 2016"

Robust Trading for Ambiguity-Averse Insiders

Vitale Paolo, G. d'Annunzio University

In an asset market with explicit trading rules, we characterize the trading activity of an ambiguity-averse insider who faces Knightian uncertain over market conditions and seeks to implement a robust trading strategy. Such insider employs a min-max choice mechanism, so that in any round of trading she first identifies the worst market conditions and then se- lects the optimal market order against such conditions. 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.

Area: Asset Pricing and Derivatives

Keywords: Insider Trading, Market Efficiency, Robust Trading, Ambiguity-aversion

Please Login in order to download this file

University Network