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Insider trading with correlation between liquidity trading and a public signal

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  • Katsumasa Nishide

Abstract

We analyse a Kyle-type continuous-time market model in which liquidity trading is correlated with a noisy public signal that is released continuously. We show that, in contrast to the previous literature, Kyle's λ, the price sensitivity to the order flow, can even be non-monotonic, depending on the correlation structure. We also show that the introduction of an additional public signal does not necessarily improve the informational efficiency of the market, depending on the correlation.

Suggested Citation

  • Katsumasa Nishide, 2009. "Insider trading with correlation between liquidity trading and a public signal," Quantitative Finance, Taylor & Francis Journals, vol. 9(3), pages 297-304.
  • Handle: RePEc:taf:quantf:v:9:y:2009:i:3:p:297-304 DOI: 10.1080/14697680802165728
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    References listed on IDEAS

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    Cited by:

    1. Daher, Wassim & Mirman, Leonard J. & Saleeby, Elias G., 2014. "Two-period model of insider trading with correlated signals," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 57-65.

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