The Impact of Insider Trading on the Secondary Market with Order-Driven System
AbstractCombining Leland (1992), Madhavan (1992) and Repullo (1999) and under the framework of Rational Expectation Equilibrium (REE), the paper analyzes the impact of insider trading on the secondary market with order-driven system. We show that when insider trading is allowed, the average price will not change and there is a positive correlation between the future price and the current price. The volatility and liquidity change on uncertain directions with insider trading. With or without insider trading, the price will be efficient in some special cases. The insider is benefited by insider trading, while, the outsider and liquidity trader may be benefited or hurt by insider trading.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 7 (2006)
Issue (Month): 1 (May)
Insider Trading; Secondary Market; Order-Driven System;
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D60 - Microeconomics - - Welfare Economics - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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