Two-period model of insider trading with correlated signals

Wassim Daher, Leonard Mirman and Elias G. Saleeby

Journal of Mathematical Economics, 2014, vol. 52, issue C, 57-65

Abstract: In this article, we extend the one-period model of Jain and Mirman (1999) for asset trading with two correlated signals to a two period model. We then prove the existence and uniqueness of the Bayesian linear equilibrium. Finally, we perform comparative statics analysis with respect to Kyle (1985). Our findings reveal that adding another correlated signal (the real signal) to the total order flow of Kyle (1985), increases the amount of information incorporated in the stock price at each period and decreases the insider’s expected profits at each period.

Keywords: Insider trading; Correlated signals; Difference equation; Kyle model (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:52:y:2014:i:c:p:57-65

DOI: 10.1016/j.jmateco.2014.03.003

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