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Insider trading with different market structures

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  • Daher, Wassim
  • Karam, Fida
  • Mirman, Leonard J.

Abstract

The recent theoretical research on the informational effect of insider trading in the spirit of Kyle (1985) and Jain and Mirman (1999) was mainly interested in the interaction between the financial and real decisions of the insider, taking into consideration different market structures in both the real and financial markets. However, none investigated the importance of the competition structure in the financial market modeled alone, on the dissemination of information. In this paper, we highlight the effect of the competition structure in the financial market on information revelation. For this purpose, we first extend Jain and Mirman (1999) to incorporate: (i) Cournot competition among the insiders (Model I) and (ii) Stackelberg competition between the insiders (Model II). We then add a real market to Model II, where the publicly-owned firm is a quantity-setting monopolist (Model III). The last model allows to investigate where does the real market interfere relatively to Model II. We show how the equilibrium outcomes are affected by each of the market structure and we perform a comparative statics analysis between the models.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:143-154 DOI: 10.1016/j.iref.2012.01.008
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    References listed on IDEAS

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    1. Jean-Charles Rochet & Jean-Luc Vila, 1994. "Insider Trading without Normality," Review of Economic Studies, Oxford University Press, 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), pages 333-353.
    3. Leonard F.S. Wang, 2010. "Stackelberg real-leader in an insider trading model," Studies in Economics and Finance, Emerald Group Publishing, vol. 27(1), pages 30-46, March.
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    Cited by:

    1. repec:hal:journl:halshs-00676502 is not listed on IDEAS
    2. Lyudmila A. Glik & Oleg L. Kritski, 2014. "Finding informed traders in futures and their inderlying assets in intraday trading," Papers 1402.6583, arXiv.org.
    3. Wassim Daher & Harun Aydilek & Fida Karam & Asiye Aydilek, 2014. "Insider trading with product differentiation," Journal of Economics, Springer, pages 173-201.
    4. Wassim Daher & Harun Aydilek & Fida Karam & Asiye Aydilek, 2014. "Insider trading with product differentiation," Journal of Economics, Springer, pages 173-201.
    5. Mirman, Leonard J. & Salgueiro, Egas M. & Santugini, Marc, 2014. "Noisy signaling in monopoly," International Review of Economics & Finance, Elsevier, pages 504-511.
    6. Daher, Wassim & Aydilek, Harun & Saleeby, Elias G., 2017. "Insider Trading With Different Risk Attitudes," MPRA Paper 81733, University Library of Munich, Germany.

    More about this item

    Keywords

    Insider trading; Cournot; Stackelberg; Correlated signals; Kyle model;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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