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Strategic information leakage with market supervision

Author

Listed:
  • Li, Ningwei
  • Li, Zhihua
  • Liu, Hong
  • Yang, Qingshan

Abstract

Regulatory regime aims to prevent insider information from manipulating market and ensure fair competition among investors. This paper constructs a regulatory model for insider trading in the market and explores how regulatory oversight influences the decision of the insider who voluntarily leaks information to market makers. The conclusion is that regulatory intervention suppresses the insider from exploiting shared information with outsiders, reducing price efficiency. Moreover, an increase of supervision will further encourage the insider to leak more information until the public information is completely released to market makers. Furthermore, when there is an outsider, the insider may choose not to disclose information to market makers, regardless of the implementation of regulatory policies; when there are multiple outsiders in the market and strict regulatory frameworks, the insider is motivated to provide market makers with more precise information. The results provide a theoretical basis for the insider to release information to underwriters in a regulated market.

Suggested Citation

  • Li, Ningwei & Li, Zhihua & Liu, Hong & Yang, Qingshan, 2024. "Strategic information leakage with market supervision," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001050
    DOI: 10.1016/j.najef.2024.102180
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Insider trading behavior; Information leakage; The optimal regulation;
    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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