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Asymmetric information correlation in financial markets

Author

Listed:
  • Jiang, Ying
  • Liu, Hong
  • Yang, Qingshan

Abstract

This paper investigates a market model in which the exclusive information of the insider is correlated with the information of outsiders. Our findings suggest that increasing the degree of information correlation can improve market quality, enhancing market liquidity, market efficiency, and total trading volume. Additionally, the degree of information correlation increases the profits of outsiders and noise traders but reducing the profit of the insider. These results indicate that higher degree of information correlation is beneficial to market health, especially during period of economic crisis. Therefore, we suggest that the government and regulatory institutions expand the scope of information disclosure and ensure the accuracy of information disclosed. Furthermore, the study reveals that positive correlation leads to increased trading intensity for outsiders and decreased trading intensity for the insider. In contrast, negative correlation results in more complex changes in trading intensity for both groups due to belief inconsistency and intricate psychological reactions of traders to variations in information. Additionally, we provide an empirical analysis based on data from the Chinese market to support our findings.

Suggested Citation

  • Jiang, Ying & Liu, Hong & Yang, Qingshan, 2024. "Asymmetric information correlation in financial markets," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:ecofin:v:71:y:2024:i:c:s106294082400038x
    DOI: 10.1016/j.najef.2024.102113
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    References listed on IDEAS

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    More about this item

    Keywords

    Insider trading; Information correlation; Information advantages; Noise traders;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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