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Inside Trading when the Market Deviates from the Semi-strong Efficient Condition

Author

Listed:
  • Hong Liu

    (Key Laboratory of Applied Statistics of MOE, School of Mathematics and Statistics, Northeast Normal University)

  • Jingyuan Wu

    (Key Laboratory of Applied Statistics of MOE, School of Mathematics and Statistics, Northeast Normal University)

  • Qingshan Yang

    (Key Laboratory of Applied Statistics of MOE, School of Mathematics and Statistics, Northeast Normal University)

Abstract

We study the impacts of shared information and price deviation from the semi-strong efficient condition on traders' trading behavior in the context of Kyle (1985)'s speculative market. We find that when the price is lower than the semi-strong efficient price, the insider and outsiders trade more aggressively using their private information, with a result that more information is incorporated into the price. Moreover, both the insider and outsiders prefer the price to be lower than the semi-strong efficient condition, whereas market makers prefer the price to be higher than the semi-efficient condition.

Suggested Citation

  • Hong Liu & Jingyuan Wu & Qingshan Yang, 2017. "Inside Trading when the Market Deviates from the Semi-strong Efficient Condition," Annals of Economics and Finance, Society for AEF, vol. 18(1), pages 111-128, May.
    • Handle: RePEc:cuf:journl:y:2017:v:18:i:1:liu:wu:yang
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    References listed on IDEAS

    as
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    3. Leonard J. Mirman & Neelam Jain, 2000. "Real and financial effects of insider trading with correlated signals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(2), pages 333-353.
    4. Daher, Wassim & Mirman, Leonard J., 2007. "Market structure and insider trading," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 306-331.
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    Cited by:

    1. Wassim Daher & Harun Aydilek & Elias G. Saleeby, 2020. "Insider trading with different risk attitudes," Journal of Economics, Springer, vol. 131(2), pages 123-147, October.

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    More about this item

    Keywords

    Market makers; Outsiders; Inside trading; Price deviation from semi-strong efficient condition; Nash equilibrium;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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