Strategic Trading and Blockholder Dynamics

We study strategic trading by a privately informed blockholder who monitors a company and trades its shares. Private information results in larger block sizes in good states, but by increasing the speed of the blockholder's selling, it can result in lower block sizes in bad states. Despite the heterogeneous impact on expected block size, we show that asymmetric information leads to Pareto improvements: it raises stock prices, benefits small uninformed shareholders, and benefits the block owner, despite the negative impact on liquidity.