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Imperfect Competition among Informed Traders


  • Kerry Back

    (Olin School of Business, Washington University in St. Louis,)

  • C. Henry Cao

    (Haas School of Business, University of California at Berkeley,)

  • Gregory A. Willard

    (Sloan School of Management, M.I.T.)


We analyze competition among informed traders in the continuous-time Kyle(1985) model, as Foster and Viswanathan (1996) do in discrete time. We explicitly describe the unique linear equilibrium when signals are imperfectly correlated and confirm the conjecture of Holden and Subrahmanyam (1992) that there is no linear equilibrium when signals are perfectly correlated. One result is that at some date, and at all dates thereafter, the market would have been more informationally efficient had there been a monopolist informed trader instead of competing traders. The relatively large amount of private information remaining near the end of trading causes the market to approach complete illiquidity. Copyright The American Finance Association 2000.

Suggested Citation

  • Kerry Back & C. Henry Cao & Gregory A. Willard, 2000. "Imperfect Competition among Informed Traders," Journal of Finance, American Finance Association, vol. 55(5), pages 2117-2155, October.
  • Handle: RePEc:bla:jfinan:v:55:y:2000:i:5:p:2117-2155

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