The Impact of Insider Trading on the Secondary Market with Order-Driven System

Combining Leland (1992), Madhavan (1992) and Repullo (1999) and under the framework of Rational Expectation Equilibrium (REE), the paper analyzes the impact of insider trading on the secondary market with order-driven system. We show that when insider trading is allowed, the average price will not change and there is a positive correlation between the future price and the current price. The volatility and liquidity change on uncertain directions with insider trading. With or without insider trading, the price will be efficient in some special cases. The insider is benefited by insider trading, while, the outsider and liquidity trader may be benefited or hurt by insider trading.

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Year of publication:	2006
Authors:	Jiang, Xianfeng ; Shi, Yongdong
Published in:	Annals of Economics and Finance. - China Economics and Management Academy, ISSN 1529-7373. - Vol. 7.2006, 1, 6, p. 129-143
Publisher:	China Economics and Management Academy
Subject:	Insider Trading \| Secondary Market \| Order-Driven System

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Extent:	application/pdf
Type of publication:	Article
Classification:	C68 - Computable General Equilibrium Models ; C73 - Stochastic and Dynamic Games ; D60 - Welfare Economics. General ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; G14 - Information and Market Efficiency; Event Studies
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009228642