The Impact of Insider Trading on the Secondary Market in the Order-Driven System

Shi, Yongdong; Jiang, Xianfeng

doi:10.2139/ssrn.466820

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The Impact of Insider Trading on the Secondary Market in the Order-Driven System

18 Pages Posted: 12 Jan 2004

See all articles by Yongdong Shi

Yongdong Shi

Dongbei University of Finance and Economics (DUFE)

Xianfeng Jiang

Dongbei University of Finance and Economics (DUFE); The People's Bank of China (PBC) - Institute of Finance

Date Written: May 2003

Abstract

Under the framework of Rational Expectation Equilibrium (REE), the paper analyzes the impacts of insider trading on the secondary market in the order-driven system. We show that when insider trading is allowed, the average price will not change and there is a positive correlation between the future price and the current price. The volatility and liquidity change without sure direction with insider trading. The price efficiency is a special case with and without insider trading. The insider is benefit by insider trading wherever the outsider and liquidity trader may be benefit or hurt by insider trading.

Keywords: Insider Trading, Secondary Market, Order-Driven System

JEL Classification: C68, C73, D60, D81, G14

Suggested Citation: Suggested Citation

Shi, Yongdong and Jiang, Xianfeng, The Impact of Insider Trading on the Secondary Market in the Order-Driven System (May 2003). Available at SSRN: https://ssrn.com/abstract=466820 or http://dx.doi.org/10.2139/ssrn.466820