Competition in the stock market with asymmetric information

Kun Tracy Wang and Wanbin Walter Wang

Economic Modelling, 2017, vol. 61, issue C, 40-49

Abstract: We build a game theoretical model to examine how the level of information advantage of insiders and the competition between insiders and sophisticated investors affect stock price movements and traders’ trading strategies and profits. We show that the competition between insiders and sophisticated investors can reduce the losses of less sophisticated investors, and thus alleviates the disadvantaged position of the less sophisticated investors. Further, traders’ profits are affected by the accuracy of insiders’ private information, and the number of days that insiders have obtained the information in advance. These findings show the importance of information transparency and the role of sophisticated investors in limiting insiders’ trading advantages and mitigating the expropriation of investors by insiders.

Keywords: Asymmetric information; Inside trading; Trading strategies; Trading profit; Nash equilibrium; Price movement (search for similar items in EconPapers)
JEL-codes: C72 D82 G14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:61:y:2017:i:c:p:40-49

DOI: 10.1016/j.econmod.2016.11.024

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