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Insider Trading With Different Risk Attitudes

Wassim Daher (), Harun Aydilek and Elias G. Saleeby

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the effect of different risk attitudes on the financial decisions of two insiders trading in the stock market. We consider a static version of the Kyle (1985) model with two insiders. Insider 1 is risk neutral while insider 2 is risk averse with negative exponential utility. First, we prove the existence of a unique linear equilibrium. Second, we obtain somewhat surprising results on how the risk attitudes affect the market liquidity, the price efficiency, when we carry out a comparative static analysis with respect to Tighe (1989) and Holden and Subrahmanyam(1994) models.

Keywords: Insider trading; Risk neutrality; Risk aversion; Exponential Utility; Market structure; Kyle model (search for similar items in EconPapers)
JEL-codes: D8 D82 G1 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-gth and nep-upt
Date: 2017-09-28
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