Insider Trading with Correlation between Liquidity Trading and a Public Signal

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 lambda, the price sensitivity to the order flow, can even be nonmonotonic, 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