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Analysis of the Behavior of Insider Traders Who Disclose Information to External Traders

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  • Xingxing Cao

    (College of Mathematics and Statistics, Yili Normal University, Yining 835000, China)

  • Jing Wang

    (College of Mathematics and Statistics, Yili Normal University, Yining 835000, China
    Institute of Applied Mathematics, Yili Normal University, Yining 835000, China)

  • Zhi Yang

    (College of Mathematics and Statistics, Yili Normal University, Yining 835000, China
    Institute of Applied Mathematics, Yili Normal University, Yining 835000, China)

Abstract

This paper establishes an insider trading model under market supervision, which includes four types of trading entities: an insider trader, n external traders, noise traders, and market makers. The insider trader voluntarily discloses information to the external traders during the trading process. The research findings are as follows: (1) strengthening market supervision can significantly reduce the insider’s expected profit and increase the external traders’ expected profits; (2) the optimal market supervision strategy is closely related to the number of external traders; (3) the insider trader tends to disclose low-precision information to maximize their profits; (4) the precision of information disclosed by the insider trader and the intensity of market supervision affect price efficiency and the amount of residual information. The research results provide a basis for how the insider trader discloses information to external traders in market supervision and offer a reference for regulatory authorities to formulate differentiated supervision strategies.

Suggested Citation

  • Xingxing Cao & Jing Wang & Zhi Yang, 2025. "Analysis of the Behavior of Insider Traders Who Disclose Information to External Traders," IJFS, MDPI, vol. 13(2), pages 1-19, June.
    • Handle: RePEc:gam:jijfss:v:13:y:2025:i:2:p:112-:d:1680896
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    References listed on IDEAS

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    5. Holden, Craig W. & Subrahmanyam, Avanidhar, 1994. "Risk aversion, imperfect competition, and long-lived information," Economics Letters, Elsevier, vol. 44(1-2), pages 181-190.
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