Insider Trading With Different Risk Attitudes

31 Pages Posted: 31 Jan 2020

See all articles by Wassim Daher

Wassim Daher

Gulf University for Science and Technology (GUST)

Harun Aydilek

Gulf University for Science and Technology (GUST)

Elias G. Saleeby

affiliation not provided to SSRN

Date Written: December 28, 2019

Abstract

This paper examines the impact of different risk attitudes on the financial decisions of two insiders trading in the stock market. We consider a static version of the Kyle (1985) model with two insiders. Insider 1 is risk neutral while insider 2 is risk averse with negative exponential utility. First, we analytically prove the existence of a unique linear equilibrium. Second, we carry out a comparative static analysis with respect to the duopoly case of risk-neutral insiders (Tighe (1989)) and with respect to the duopoly case of risk-averse insiders (Holden and Subrahmanyam (1994)) models. Our findings reveal that the market depth and the information revelation are higher in Tighe (1989) than in our model. However, compared to Holden and Subrahmanyam (1994), we find that the market depth depends crucially on the degree of risk aversion. Finally, we show that regardless of the degree of risk aversion, the stock price reveals more information in our model than the stock price in Holden and Subrahmanyam (1994).

Keywords: Insider trading, Risk neutrality, Risk aversion, Exponential Utility, Market structure, Kyle model

JEL Classification: G14, D82

Suggested Citation

Daher, Wassim and Aydilek, Harun and Saleeby, Elias G., Insider Trading With Different Risk Attitudes (December 28, 2019). Available at SSRN: https://ssrn.com/abstract=3510741 or http://dx.doi.org/10.2139/ssrn.3510741

Wassim Daher (Contact Author)

Gulf University for Science and Technology (GUST) ( email )

Department of Mathematics and Natural Sciences
Office W1-168
Mishref, Mubarak Al-Abdullah Al-Jaber Area (West Mishref)
Kuwait
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Harun Aydilek

Gulf University for Science and Technology (GUST) ( email )

Masjid Al Aqsa Street
Mubarak Al-Abdullah
Kuwait

Elias G. Saleeby

affiliation not provided to SSRN

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