Insider Trading Without Normality
The authors analyze the existence and uniqueness of equilibrium in a class of monopolistic rational expectations models. They show the equivalence between the Kyle (1985) model of inside trading where the insider observes the amount of noise trading and the Kyle (1989) model of informed speculation when there is one risk-neutral insider and many risk-neutral marketmakers. The authors show that in these two equivalent models: (1) there exists a unique equilibrium independently of the distribution of uncertainty; and (2) this equilibrium minimizes the expected gains of the informed agent under incentive compatibility constraints. They extend their results to a class of signalling games. Copyright 1994 by The Review of Economic Studies Limited.
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