The Impact of Insider Trading on the Secondary Market with Order-Driven System

Xianfeng Jiang and Yongdong Shi
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Xianfeng Jiang: School of Finance, Dongbei University of Finance and Economics
Yongdong Shi: Research Center for Applied Finance, Dongbei University

Annals of Economics and Finance, 2006, vol. 7, issue 1, 129-143

Abstract: Combining Leland (1992), Madhavan (1992) and Repullo (1999) and under the framework of Rational Expectation Equilibrium (REE), the paper analyzes the impact of insider trading on the secondary market with order-driven system. We show that when insider trading is allowed, the average price will not change and there is a positive correlation between the future price and the current price. The volatility and liquidity change on uncertain directions with insider trading. With or without insider trading, the price will be efficient in some special cases. The insider is benefited by insider trading, while, the outsider and liquidity trader may be benefited or hurt by insider trading.

Keywords: Insider Trading; Secondary Market; Order-Driven System (search for similar items in EconPapers)
JEL-codes: C68 C73 D60 D81 G14 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2006:v:7:i:1:p:129-143

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