Using privileged information to manipulate markets: Insiders, gurus, and credibility

Roland Benabou, Guy Laroque

Research output: Contribution to journalArticlepeer-review

262 Scopus citations


Access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements. The fact that privileged information is noisy interferes with the public’s attempts to learn whether such announcements are honest; it allows opportunistic individuals to manipulate prices repeatedly, without ever being fully found out. This leads us to extend Sobel’s [1985] model of strategic communication to the case of noisy private signals. Our results show that when truthfulness is not easily verifiable, restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices.

Original languageEnglish (US)
Pages (from-to)921-958
Number of pages38
JournalQuarterly Journal of Economics
Issue number3
StatePublished - Aug 1992
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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