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Stackelberg real-leader in an insider trading model

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  • Leonard F.S. Wang
  • Ya-Chin Wang
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    Abstract

    Purpose – The purpose of this paper is to extend the work of earlier researches relating to insider trading issues in the stock market under a Cournot-Stackelberg duopoly. Design/methodology/approach – This paper models that the competition among the insiders in the real market be Stackelberg, which reflects that for all outside and inside reasons, the position and influence of a firm may become the leader or the follower as time goes by. Findings – The paper demonstrates that when the listed company with insiders becomes the leader in the industry, the reaction functions of insiders will change as well as the parameters of the market, to signal from real and financial sides, but the amount traded by insiders remains the same; so does the degree of information revelation. In addition, for the information revealed to the public, the stock price reveals more information with Stackelberg real-leader model than that of the Stackelberg financial-leader model. Originality/value – The main contribution of this paper is that market makers can very well observe signals from the real side, and bringing a signal from the real side can help the stock market reveal more information, but once the signal is introduced, it may not further enhance market efficiency.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 27 (2010)
    Issue (Month): 1 (March)
    Pages: 30-46

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    Handle: RePEc:eme:sefpps:v:27:y:2010:i:1:p:30-46

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    Related research

    Keywords: Competitive strategy; Insider trading; Marketing models; Stock price;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Rohit Rahi & James Dow, 1998. "Informed Trading, Investment, and Welfare," FMG Discussion Papers dp292, Financial Markets Group.
    2. Manove, Michael, 1989. "The Harm from Insider Trading and Informed Speculation," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 823-45, November.
    3. Wassim Daher & Leonard J. Mirman, 2004. "Market structure and insider trading," Cahiers de la Maison des Sciences Economiques b04025, Université Panthéon-Sorbonne (Paris 1).
    4. Wassim Daher & Leonard J. Mirman, 2004. "Cournot duopoly and insider trading with two insiders," Cahiers de la Maison des Sciences Economiques b04077, Université Panthéon-Sorbonne (Paris 1).
    5. Thomas H. Noe, 1995. "Insider trading and the problem of corporate agency," Working Paper 95-2, Federal Reserve Bank of Atlanta.
    6. Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-87, August.
    7. Jain, Neelam & Mirman, Leonard J., 2002. "Effects of insider trading under different market structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 19-39.
    8. Hu, Jie & Noe, Thomas H., 2001. "Insider trading and managerial incentives," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 681-716, April.
    9. Leonard J. Mirman & Neelam Jain, 2000. "Real and financial effects of insider trading with correlated signals," Economic Theory, Springer, vol. 16(2), pages 333-353.
    10. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
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    Cited by:
    1. Fida Karam & Wassin Daher, 2011. "Insider trading in a two-tier real market structure model," Documents de travail du Centre d'Economie de la Sorbonne 11068, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Wassim Daher & Harun Aydilek & Fida Karam & Asiye Aydilek, 2012. "Insider Trading With Product Differentiation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00676502, HAL.

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