Cookies?
Library Header Image
LSE Research Online LSE Library Services

Stock market insider trading in continuous time with imperfect dynamic information

Danilova, Albina (2010) Stock market insider trading in continuous time with imperfect dynamic information. Stochastics: an International Journal of Probability and Stochastic Processes, 82 (1). pp. 111-131. ISSN 1744-2508

Full text not available from this repository.

Abstract

In this paper, I study the equilibrium pricing of asset shares in the presence of dynamic private information. The market consists of a risk-neutral informed agent who observes the firm value, noise traders and competitive market makers who set share prices using the total order flow as a noisy signal of the insider's information. I provide a characterization of all optimal strategies and prove the existence of both Markovian and non-Markovian equilibria by deriving closed-form solutions for the optimal order process of the informed trader and the optimal pricing rule of the market maker. The consideration of non-Markovian equilibrium is relevant since the market maker might decide to re-weight past information after receiving a new signal. Also, I show that (1) there is a unique Markovian equilibrium price process that allows the insider to trade undetected and (2) the presence of an insider increases the market's informational efficiency, in particular, for times close to dividend payment.

Item Type: Article
Official URL: http://www.tandf.co.uk/journals/titles/17442508.as...
Additional Information: © 2010 Taylor & Francis
Library of Congress subject classification: H Social Sciences > HG Finance
Q Science > QA Mathematics
H Social Sciences > HA Statistics
Sets: Departments > Mathematics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: UT ISI:000280410900007
Date Deposited: 27 Aug 2010 13:31
URL: http://eprints.lse.ac.uk/29004/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only