Abstract
This paper employs a natural experiment from financial history to study the process by which private information is incorporated into prices. I look at the market for English securities in the Netherlands during the 1770s and 1780s. Anecdotal evidence suggests that English insiders traded actively on their private signals, both in London and in Amsterdam. I reconstruct the arrival dates of sailing boats that transmitted information from London to Amsterdam and I look at the movement of English security prices between the arrivals of boats. The evidence is consistent with a Kyle (1985) model in which insiders trade on their private signals in a strategic way and private information is only slowly revealed to the market as a whole. The speed of information revelation in Amsterdam crucially depended on how long insiders expected it would take for the private signal to be publicly revealed. The importance of private information is underlined by the response of London prices to price discovery in Amsterdam.
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