Insider trading in a two-tier real market structure model
AbstractIn this paper, we study the real and financial effects of insider trading in the spirit of Jain and Mirman (1999). Unlike the previous works that address this issue, we suppose that the production of the real good is costly and depends mainly of the price of an intermediate good produced locally by a privately-owned firm. We show that the real output of the final good chosen by the insider as well as the price of the intermediate good set by the privately-owned firm are both greater than it would be in the absence of insider trading. Furthermore, the parameters of both real markets affect the stock price and the stock pricing rule. Besides, when compared to Jain and Mirman (2000) and (2002), this two-tier real market structure does not alter the amount of information disseminated in the stock price or the level of insider trading. Next, we add a second insider to the model. We show that competition in the financial sector decreases the level of output produced by firm 1 and the price of the intermediate good with respect to initial model. Moreover, it affects the insiders' trades and increases the amount of information revealed in the stock price.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 11068.
Length: 23 pages
Date of creation: Oct 2011
Date of revision:
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Insider trading; two-tier market; Stackelberg; correlated signals; Kyle model.;
Other versions of this item:
- Wassim Daher & Fida Karam, 2011. "Insider Trading in a Two-Tier real market structure model," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00653971, HAL.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
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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UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers)
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