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Stackelberg financial-leader in insider trading model

Author

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  • Wang, Leonard F.S.
  • Wang, Ya-Chin
  • Ren, Shuang

Abstract

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.

Suggested Citation

  • Wang, Leonard F.S. & Wang, Ya-Chin & Ren, Shuang, 2009. "Stackelberg financial-leader in insider trading model," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 123-131, January.
    • Handle: RePEc:eee:reveco:v:18:y:2009:i:1:p:123-131
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    References listed on IDEAS

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    1. Jean-Charles Rochet & Jean-Luc Vila, 1994. "Insider Trading without Normality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 131-152.
    2. Daher, Wassim & Mirman, Leonard J., 2007. "Market structure and insider trading," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 306-331.
    3. 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.
    4. 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.
    5. James Dow, 2003. "Informed Trading, Investment, and Welfare," The Journal of Business, University of Chicago Press, vol. 76(3), pages 439-454, July.
    6. 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.
    7. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    8. Michael Manove, 1989. "The Harm from Insider Trading and Informed Speculation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 823-845.
    9. 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.
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    Citations

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    Cited by:

    1. Daher, Wassim & Karam, Fida & Ahmed, Naveed, 2023. "Insider Trading with Semi-Informed Traders and Information Sharing: The Stackelberg Game," MPRA Paper 118138, University Library of Munich, Germany.
    2. Wassim Daher & Harun Aydilek & Fida Karam & Asiye Aydilek, 2014. "Insider trading with product differentiation," Journal of Economics, Springer, vol. 111(2), pages 173-201, March.
    3. Liang, Woan-lih & Lin, Hsiou-wei W. & Syu, Yir-Jung, 2010. "Precision of Investor Information and Financial Disclosure," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 627-632, October.
    4. Daher, Wassim & Karam, Fida & Mirman, Leonard J., 2012. "Insider trading with different market structures," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 143-154.
    5. Wassim Daher & Fida Karam & Naveed Ahmed, 2023. "Insider Trading with Semi-Informed Traders and Information Sharing: The Stackelberg Game," Mathematics, MDPI, vol. 11(22), pages 1-16, November.
    6. Karam, Fida & Daher, Wassim, 2013. "Insider trading in a two-tier real market structure model," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(1), pages 44-52.
    7. Cheng, Louis T.W. & Davidson III, Wallace N. & Leung, T.Y., 2011. "Insider trading returns and dividend signals," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 421-429, June.
    8. Liu, Hong & Zhang, Zhixiang, 2011. "Insider trading with public and shared information," Economic Modelling, Elsevier, vol. 28(4), pages 1756-1762, July.
    9. Park, Young S. & Lee, Jaehyun, 2010. "Detecting insider trading: The theory and validation in Korea Exchange," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2110-2120, September.
    10. Lyudmila A. Glik & Oleg L. Kritski, 2014. "Finding informed traders in futures and their inderlying assets in intraday trading," Papers 1402.6583, arXiv.org.
    11. 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.
    12. Karam, Fida & Daher, Wassim, 2013. "Insider trading in a two-tier real market structure model," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(1), pages 44-52.
    13. 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.
    14. Gong, Fuzhou & Liu, Hong, 2012. "Inside trading, public disclosure and imperfect competition," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 200-223.

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