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Cournot duopoly and insider trading with two insiders

  • Wassim Daher

    ()

    (CERMSEM)

  • Leonard J. Mirman

    ()

    (University of Virginia)

In this paper, we study a version of the static Jain-Mirman (2002) model in which competition in the real sector is introduced. In this paper, we add competition in the stock sector to the Jain-Mirman (2002) paper. We show that the linear equilibrium structure is affected by this competition in the financial sector. Specifically, we show that the stock price set by the market maker reveals more information and that the behaviour of the profits of the manager depends on the parameters of the model. Moreover, we prove that the level of output produced by the manager is less than in Jain-Mirman (2002). Finally, we also study the case in which the market maker receives only one signal and analyze the comparative statics of this model when the market maker receives either one or two signals.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2004/B04077.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b04077.

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Length: 21 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:mse:wpsorb:b04077
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  1. Baiman, Stanley & Verrecchia, Robert E., 1995. "Earnings and price-based compensation contracts in the presence of discretionary trading and incomplete contracting," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 93-121, July.
  2. Creane, Anthony, 1994. "Experimentation with Heteroskedastic Noise," Economic Theory, Springer, vol. 4(2), pages 275-86, March.
  3. Dow, J & Rahi, R, 1997. "Informed Trading, Investment, and Welfare," Economics Working Papers eco97/03, European University Institute.
  4. Jain, Neelam & Mirman, Leonard J., 1999. "Insider trading with correlated signals," Economics Letters, Elsevier, vol. 65(1), pages 105-113, October.
  5. Hayne E. Leland., 1990. "Insider Trading: Should It Be Prohibited?," Research Program in Finance Working Papers RPF-195, University of California at Berkeley.
  6. Jain, Neelam & Mirman, Leonard J., 2002. "Effects of insider trading under different market structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 19-39.
  7. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  8. Manove, Michael, 1989. "The Harm from Insider Trading and Informed Speculation," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 823-45, November.
  9. Daher, Wassim & Mirman, Leonard J., 2007. "Market structure and insider trading," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 306-331.
  10. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
  11. Leonard J. Mirman & Neelam Jain, 2000. "Real and financial effects of insider trading with correlated signals," Economic Theory, Springer, vol. 16(2), pages 333-353.
  12. Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
  13. Rochet, J.C. & Vila, J.L., 1993. "Insider Trading Without Normality," Papers 93.b, Toulouse - GREMAQ.
  14. Ausubel, Lawrence M, 1990. "Insider Trading in a Rational Expectations Economy," American Economic Review, American Economic Association, vol. 80(5), pages 1022-41, December.
  15. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. " Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-70, March.
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