Competitive Trading and Endogenous Learning of Asymmetrically Informed Investors

Information asymmetry between privately informed investors, interacting with public information transparency, significantly affects trading and learning behaviors, price formation, information revelation, and market efficiency. Private information asymmetry-induced strategic trading behaviors explain the asymmetric U-shape patterns of intraday stock trading volume, return, and volatility. Market depth tends to rise (fall) at market opening (closure) with private information asymmetry increasing. A non-zero degree of private information asymmetry leads to minimal informational trading profit and maximal market efficiency. Disclosure policy should consider its effects on both private information asymmetry and public information transparency in optimizing efficiency and investor protection