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Information diversity, collusion of informed traders and asset prices

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  • Huang, XiaoHong
  • Ni, Jian
  • Xu, Yue

Abstract

This paper investigates the effects of imperfect competition arising from the potential collusion of informed traders on asset prices in a financial market with information diversity. We report several new results when both imperfect competition and information diversity are present. It is shown that imperfect competition tends to induce strategic substitutability in the trading behaviors of different types of traders, and this will, in turn, raise the cost of capital and make the market thinner. Meanwhile, the intensity of informed trading may also be reduced, possibly dampening the informational efficiency of the market and exacerbating the price volatility. We compare and contrast our results with previous studies to highlight the necessity to investigate imperfect competition in a market with information diversity.

Suggested Citation

  • Huang, XiaoHong & Ni, Jian & Xu, Yue, 2026. "Information diversity, collusion of informed traders and asset prices," Economic Modelling, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:ecmode:v:154:y:2026:i:c:s0264999325003165
    DOI: 10.1016/j.econmod.2025.107321
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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