Journal of Advances in Economics and Finance

Download PDF (229.5 KB) PP. 185 - 194 Pub. Date: August 1, 2017

DOI: 10.22606/jaef.2017.23004

• Leonard F.S. Wang^*
  Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China

In this paper, we extend Jain and Mirman (2000, 2002), Daher and Mirman (2006, 2007), Wang et al. (2009) and Wang and Wang (2010) on modeling insider trading under Cournot duopoly competition, but focus on changes in the financial side by introducing more owners as insiders, all of whom possess the same inside information and can trade in the stock market. We find that in reality, the output of listed firm decreases but quantity produced by other firm increases, though total output becomes less. Market makers are less responsive to both signals from real and financial sides, but will set stock prices higher with zero signals. The manager and each owner will order fewer stocks in the financial side, but the total order flow still depends upon the realized values of inside information. As the number of insiders increases, the profits of the manager and each owner will decrease correspondingly, so does the variance of the observed inside information. If the number approaches infinity, then all insiders’ profits will also reach zero, and at the same time, there is no variance for the inside information. That is to say, all inside information is revealed to the public so the stock market is perfectly

Cournot duopoly, insider trading, correlated signals, stock price, kyle model.

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