Inside Trading when the Market Deviates from the Semi-strong Efficient Condition

We study the impacts of shared information and price deviation from the semi-strong efficient condition on traders' trading behavior in the context of Kyle (1985)'s speculative market. We find that when the price is lower than the semi-strong efficient price, the insider and outsiders trad...

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Bibliographic Details
Published in:Annals of economics and finance 2017-05, Vol.18 (1), p.111-128
Main Authors: Liu, Hong, Wu, Jingyuan, Yang, Qingshan
Format: Article
Language:English
Subjects:
Deviation
Economic models
Trading
Online Access:Get full text
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Summary:We study the impacts of shared information and price deviation from the semi-strong efficient condition on traders' trading behavior in the context of Kyle (1985)'s speculative market. We find that when the price is lower than the semi-strong efficient price, the insider and outsiders trade more aggressively using their private information, with a result that more information is incorporated into the price. Moreover, both the insider and outsiders prefer the price to be lower than the semi-strong efficient condition, whereas market makers prefer the price to be higher than the semi-efficient condition.
ISSN:1529-7373