Insider trading with correlation between liquidity trading and a public signal

Katsumasa Nishide

Quantitative Finance, 2009, vol. 9, issue 3, 297-304

Abstract: We analyse a Kyle-type continuous-time market model in which liquidity trading is correlated with a noisy public signal that is released continuously. We show that, in contrast to the previous literature, Kyle's λ, the price sensitivity to the order flow, can even be non-monotonic, depending on the correlation structure. We also show that the introduction of an additional public signal does not necessarily improve the informational efficiency of the market, depending on the correlation.

Keywords: Market microstructure; Financial economics; Market manipulation; Insider trading (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1080/14697680802165728

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