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Insider trading with correlation between liquidity trading and a public signal

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  • Katsumasa Nishide

Abstract

We analyse a Kyle-type continuous-time market model in which liquidity trading is correlated with a noisy public signal that is released continuously. We show that, in contrast to the previous literature, Kyle's λ, the price sensitivity to the order flow, can even be non-monotonic, depending on the correlation structure. We also show that the introduction of an additional public signal does not necessarily improve the informational efficiency of the market, depending on the correlation.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 9 (2009)
Issue (Month): 3 ()
Pages: 297-304

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Handle: RePEc:taf:quantf:v:9:y:2009:i:3:p:297-304

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Related research

Keywords: Market microstructure; Financial economics; Market manipulation; Insider trading;

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