Analysis of the Behavior of Insider Traders Who Disclose Information to External Traders

Xingxing Cao, Jing Wang () and Zhi Yang
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Xingxing Cao: College of Mathematics and Statistics, Yili Normal University, Yining 835000, China
Jing Wang: College of Mathematics and Statistics, Yili Normal University, Yining 835000, China
Zhi Yang: College of Mathematics and Statistics, Yili Normal University, Yining 835000, China

IJFS, 2025, vol. 13, issue 2, 1-19

Abstract: This paper establishes an insider trading model under market supervision, which includes four types of trading entities: an insider trader, n external traders, noise traders, and market makers. The insider trader voluntarily discloses information to the external traders during the trading process. The research findings are as follows: (1) strengthening market supervision can significantly reduce the insider’s expected profit and increase the external traders’ expected profits; (2) the optimal market supervision strategy is closely related to the number of external traders; (3) the insider trader tends to disclose low-precision information to maximize their profits; (4) the precision of information disclosed by the insider trader and the intensity of market supervision affect price efficiency and the amount of residual information. The research results provide a basis for how the insider trader discloses information to external traders in market supervision and offer a reference for regulatory authorities to formulate differentiated supervision strategies.

Keywords: insider trader; external traders; information leakage; market supervision (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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