Existence of Linear Equilibria in The Kyle Model with Partial Correlation and Two Risk Neutral Traders

Daher, Wassim and Saleeby, Elias G. (2023): Existence of Linear Equilibria in The Kyle Model with Partial Correlation and Two Risk Neutral Traders. Published in: Heliyon , Vol. e17574, No. 9 (27 June 2023)

Abstract

We study a generalization of the static model of \cite{K} with two risk neutral insiders to the case where each insider is partially informed about the value of the stock. First, we provide a necessary and sufficient condition for the uniqueness of the linear Bayesian equilibrium. Specifically, we show that, when the covariance matrix of the errors terms of the insiders' signals, is not singular, the linear Bayesian equilibrium is not unique. Then, we carry out a comparative statics analysis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Insider trading, Risk neutrality, Coefficient of Correlation, Partial Correlation, Market structure, Kyle model
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

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