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Market Equilibrium with Insider Trading and Bid-Ask Prices

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  • Guillaume Lasserre

    (Crest)

Abstract

. Many articles deal with the problem of asymmetric information onfinancial markets. Kyle (1985) studied the case of a strategic agent who knowsthe law of the prices at the end of a period. He shows the existence of anequilibrium composed by an optimal strategy for the agent and a efficient pricingrule. Glosten and Milgrom (1985) pointed out the rule played by the asymmetricinformation in the formation of the bid ask spread. The object of the paper is toexhibit an equilibrium in a one period model when the insider is strategic andwhere we study the effect of asymmetric information on the bid ask spread.

Suggested Citation

  • Guillaume Lasserre, 2003. "Market Equilibrium with Insider Trading and Bid-Ask Prices," Working Papers 2003-14, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2003-14
    as

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    References listed on IDEAS

    as
    1. Jouini Elyes & Kallal Hedi, 1995. "Martingales and Arbitrage in Securities Markets with Transaction Costs," Journal of Economic Theory, Elsevier, vol. 66(1), pages 178-197, June.
    2. Bhattacharya, Utpal & Spiegel, Matthew, 1991. "Insiders, Outsiders, and Market Breakdowns," Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 255-282.
    3. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    4. repec:dau:papers:123456789/5630 is not listed on IDEAS
    5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    6. Back, Kerry, 1992. "Insider Trading in Continuous Time," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    Full references (including those not matched with items on IDEAS)

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