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

Yongdong Shi, Xianfeng Jiang
2003 Social Science Research Network  
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
more » ... 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. c 2006 Peking University Press
doi:10.2139/ssrn.466820 fatcat:cxs3e4po25hpblsngdk77m6ebu