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Insider trading with product differentiation

Listed author(s):
  • Wassim Daher

    ()

  • Harun Aydilek

    ()

  • Fida Karam

    ()

  • Asiye Aydilek

    ()

This paper investigates the effect of product differentiation on the real and financial decisions of a publicly-owned firm, competing $$\grave{a}$$ la Cournot with another privately-owned firm. The results show that the degree of product differentiation affects the stock price coefficients (i.e. the market maker’s response to the real signal and to the total order flow signal) and the output of the publicly-owned firm. It also appears to have a detrimental effect on the manager’s profits and compensation scheme. The paper then proposes an extension of the benchmark model to incorporate Cournot and Stackelberg competition between two insiders in the financial market. The type of the financial competition adopted has also an effect on the results of the benchmark model that sometimes depend on the degree of product differentiation. Copyright Springer-Verlag Wien 2014

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File URL: http://hdl.handle.net/10.1007/s00712-013-0340-x
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 111 (2014)
Issue (Month): 2 (March)
Pages: 173-201

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Handle: RePEc:kap:jeczfn:v:111:y:2014:i:2:p:173-201
DOI: 10.1007/s00712-013-0340-x
Contact details of provider: Web page: http://www.springer.com

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  20. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  21. Jain, Neelam & Mirman, Leonard J., 1999. "Insider trading with correlated signals," Economics Letters, Elsevier, vol. 65(1), pages 105-113, October.
  22. 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.
  23. 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.
  24. 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.
  25. 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.
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