'Those Who Know Most': Insider Trading in 18th c. Amsterdam

Abstract

This paper studies how private information is incorporated into prices, using a unique setting from the 18 th century that, in many dimensions, is simpler and closer to stylized models of price discovery than modern-day markets. Speci…cally, the paper looks at a number of English securities that were traded in both London and Amsterdam. Relevant information about these securities originated in London and was sent to Amsterdam on board of o¢ cial mail packet boats. Anecdotal evidence suggests that these ships carried both public news and private information. They sailed only twice a week, and in adverse weather could not sail at all. The paper exploits periods of exogenous market segmentation to identify the impact of private information. The evidence is consistent with a Kyle (1985) model in which informed agents trade strategically. Most importantly, the speed of information revelation in Amsterdam depended on how long insiders expected it would take for the private signal to become public. As a result of this strategic behavior, private information was only slowly revealed to the market as a whole. This price discovery was economically important: private signals had almost as much impact on prices as public information shocks.