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The paper studies the impact of transaction costs on the trading strategy of informed institutional investors in a sequential trading market where traders can choose to transact a large or a small amount of the stock. The analysis shows that high transaction costs may induce informed investors to herd. Moreover, for low levels of transaction costs, informed investors trade both the large and the small quantity of the asset. Finally, if transaction costs are very low and the market width is large enough, informed traders prefer to separate from small liquidity traders.
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