Competition in the stock market with asymmetric information
Date
2017
Authors
Wang, Kun (Tracy)
wang, wanbin
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
We build a game theoretical model to examine how the level of information advantage of insiders and the competition between insiders and sophisticated investors affect stock price movements and traders’ trading strategies and profits. We show that the competition between insiders and sophisticated investors can reduce the losses of less sophisticated investors, and thus alleviates the disadvantaged position of the less sophisticated investors. Further, traders’ profits are affected by the accuracy of insiders’ private information, and the number of days that insiders have obtained the information in advance. These findings show the importance of information transparency and the role of sophisticated investors in limiting insiders’ trading advantages and mitigating the expropriation of investors by insiders.
Keywords: Asymmetric information, Inside trading, Trading strategies, Trading profit, Nash equilibrium, Price movement
JEL classification: C72; D82; G14
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Keywords
Asymmetric information, Inside trading, Trading strategies, Trading profit, Nash equilibrium, Price movement
Citation
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Source
Economic Modelling
Type
Journal article
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Restricted until
2099-12-31
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