Insider trading in a two-tier real market structure model

Fida Karam () and Wassim Daher

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: In this paper, we study the real and financial effects of insider trading in the spirit of Jain and Mirman (1999). Unlike the previous works that address this issue, we suppose that the production of the real good is costly and depends mainly of the price of an intermediate good produced locally by a privately-owned firm. We show that the real output of the final good chosen by the insider as well as the price of the intermediate good set by the privately-owned firm are both greater than it would be in the absence of insider trading. Furthermore, the parameters of both real markets affect the stock price and the stock pricing rule. Besides, when compared to Jain and Mirman (2000) and (2002), this two-tier real market structure does not alter the amount of information disseminated in the stock price or the level of insider trading. Next, we add a second insider to the model. We show that competition in the financial sector decreases the level of output produced by firm 1 and the price of the intermediate good with respect to initial model. Moreover, it affects the insiders' trades and increases the amount of information revealed in the stock price

Keywords: Insider trading; two-tier market; Stackelberg; correlated signals; Kyle model (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in The Quarterly Review of Economics and Finance, Elsevier, 53, (1), 2013, pp. 44-52

Downloads: (external link)
https://shs.hal.science/halshs-00653971 (application/pdf)
https://doi.org/10.1016/j.qref.2012.12.001

Related works:
Journal Article: Insider trading in a two-tier real market structure model (2013)
Working Paper: Insider Trading in a Two-Tier real market structure model (2011)
Working Paper: Insider Trading in a Two-Tier real market structure model (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:11068

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().