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Insider trading with different market structures

Listed author(s):
  • Daher, Wassim
  • Karam, Fida
  • Mirman, Leonard J.

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S1059056012000093
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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 24 (2012)
Issue (Month): C ()
Pages: 143-154

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Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:143-154
DOI: 10.1016/j.iref.2012.01.008
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. 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.
  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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  19. Creane, Anthony, 1994. "Experimentation with Heteroskedastic Noise," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 275-286, March.
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