IDEAS home Printed from https://ideas.repec.org/p/crs/wpaper/2003-14.html

Market Equilibrium with Insider Trading and Bid-Ask Prices

Author

Listed:
  • Guillaume Lasserre

    (Crest)

Abstract

. Many articles deal with the problem of asymmetric information onfinancial markets. Kyle (1985) studied the case of a strategic agent who knowsthe law of the prices at the end of a period. He shows the existence of anequilibrium composed by an optimal strategy for the agent and a efficient pricingrule. Glosten and Milgrom (1985) pointed out the rule played by the asymmetricinformation in the formation of the bid ask spread. The object of the paper is toexhibit an equilibrium in a one period model when the insider is strategic andwhere we study the effect of asymmetric information on the bid ask spread.

Suggested Citation

  • Guillaume Lasserre, 2003. "Market Equilibrium with Insider Trading and Bid-Ask Prices," Working Papers 2003-14, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2003-14
    as

    Download full text from publisher

    File URL: http://crest.science/RePEc/wpstorage/2003-14.pdf
    File Function: Crest working paper version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:dau:papers:123456789/5630 is not listed on IDEAS
    2. Jouini Elyes & Kallal Hedi, 1995. "Martingales and Arbitrage in Securities Markets with Transaction Costs," Journal of Economic Theory, Elsevier, vol. 66(1), pages 178-197, June.
    3. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    5. Back, Kerry, 1992. "Insider Trading in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    6. Bhattacharya, Utpal & Spiegel, Matthew, 1991. "Insiders, Outsiders, and Market Breakdowns," The Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 255-282.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bondarenko, Oleg, 2001. "Competing market makers, liquidity provision, and bid-ask spreads," Journal of Financial Markets, Elsevier, vol. 4(3), pages 269-308, June.
    2. Estrada, Javier, 1994. "Insider trading: regulation, securities markets, and welfare under risk neutrality," UC3M Working papers. Economics 2922, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1289-1361, Elsevier.
    4. Bondarenko, Oleg & Sung, Jaeyoung, 2003. "Specialist participation and limit orders," Journal of Financial Markets, Elsevier, vol. 6(4), pages 539-571, August.
    5. Dimitri Vayanos & Jiang Wang, 2012. "Market Liquidity -- Theory and Empirical Evidence," NBER Working Papers 18251, National Bureau of Economic Research, Inc.
    6. Huang, Roger D. & Masulis, Ronald W., 2003. "Trading activity and stock price volatility: evidence from the London Stock Exchange," Journal of Empirical Finance, Elsevier, vol. 10(3), pages 249-269, May.
    7. Banerjee, Snehal & Green, Brett, 2015. "Signal or noise? Uncertainty and learning about whether other traders are informed," Journal of Financial Economics, Elsevier, vol. 117(2), pages 398-423.
    8. Chang, Sanders S. & Wang, F. Albert, 2015. "Adverse selection and the presence of informed trading," Journal of Empirical Finance, Elsevier, vol. 33(C), pages 19-33.
    9. Laurie Simon Hodrick & Pamela C. Moulton, 2009. "Liquidity: Considerations of a Portfolio Manager," Financial Management, Financial Management Association International, vol. 38(1), pages 59-74, March.
    10. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    11. Dridi, Ramdan & Germain, Laurent, 2004. "Bullish/Bearish Strategies of Trading: A Nonlinear Equilibrium," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 873-886, December.
    12. Palan, Stefan & Stöckl, Thomas, 2017. "When chasing the offender hurts the victim: The case of insider legislation," Journal of Financial Markets, Elsevier, vol. 35(C), pages 104-129.
    13. Frank M. V. Feys, 2026. "Axiomatic Market Making," Papers 2606.09454, arXiv.org.
    14. Takayama, Shino, 2021. "Price manipulation, dynamic informed trading, and the uniqueness of equilibrium in sequential trading," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    15. Bjonnes, Geir Hoidal & Rime, Dagfinn, 2005. "Dealer behavior and trading systems in foreign exchange markets," Journal of Financial Economics, Elsevier, vol. 75(3), pages 571-605, March.
    16. Shino Takayama, 2018. "Price Manipulation, Dynamic Informed Trading and Tame Equilibria: Theory and Computation," Discussion Papers Series 603, School of Economics, University of Queensland, Australia.
    17. Werner Stanzl & Gur Huberman, 2000. "Arbitrage-Free Price-Update and Price-Impact Functions," Yale School of Management Working Papers ysm164, Yale School of Management, revised 01 Jan 2001.
    18. Umut c{C}etin & Mingwei Lin, 2026. "A Limit Order Market with Uncertain Informed Trading Participation," Papers 2607.04221, arXiv.org.
    19. N. Serhan Aydin, 2016. "Time value of extra information against its timely value," Papers 1610.04051, arXiv.org.
    20. Choi, Jin Hyuk & Larsen, Kasper & Seppi, Duane J., 2019. "Information and trading targets in a dynamic market equilibrium," Journal of Financial Economics, Elsevier, vol. 132(3), pages 22-49.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2003-14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Secretariat General (email available below). General contact details of provider: https://edirc.repec.org/data/crestfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.