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Stackelberg financial-leader in insider trading model

Listed author(s):
  • Wang, Leonard F.S.
  • Wang, Ya-Chin
  • Ren, Shuang
Registered author(s):

    In this paper, we extend the Jain-Mirman [Jain, N., & Mirman, L. (2000). Real and financial effects of insider trading with correlated signals. Economic Theory, 16, 333-353, Jain, N., & Mirman, L. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19-39] and the Daher-Mirman [Daher, W., & Mirman, L. (2006). Cournot duopoly and insider trading with two insiders. The Quarterly Review of Economics and Finance, 46, 530-551, Daher, W., & Mirman, L. (2007). Market structure and insider trading. International Review of Economics and Finance, 16, 306-331] papers on competition, and postulate that the competition among the insiders in the financial market be Stackelberg. However, an owner high in the organizational hierarchy, who designs manager compensation mechanisms and chooses a manager to serve his purpose, should have information on the manager's reaction and act as a Stackelberg leader in the financial sector. We show that owner's profit can definitely enlarged while the manager's profits may decrease or increase depending on the variances in the two sectors, which are the exogenous parameters.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059-0560(07)00083-4
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 18 (2009)
    Issue (Month): 1 (January)
    Pages: 123-131

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    Handle: RePEc:eee:reveco:v:18:y:2009:i:1:p:123-131
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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    1. Jean-Charles Rochet & Jean-Luc Vila, 1994. "Insider Trading without Normality," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 131-152.
    2. 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.
    3. Daher, Wassim & Mirman, Leonard J., 2007. "Market structure and insider trading," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 306-331.
    4. Jain, Neelam & Mirman, Leonard J., 2002. "Effects of insider trading under different market structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 19-39.
    5. Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-887, August.
    6. James Dow, 2003. "Informed Trading, Investment, and Welfare," The Journal of Business, University of Chicago Press, vol. 76(3), pages 439-454, July.
    7. Daher, Wassim & Mirman, Leonard J., 2006. "Cournot duopoly and insider trading with two insiders," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 530-551, September.
    8. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    9. Michael Manove, 1989. "The Harm from Insider Trading and Informed Speculation," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 823-845.
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