# ساختار بازار و تجارت داخلی

کد مقاله | سال انتشار | مقاله انگلیسی | ترجمه فارسی | تعداد کلمات |
---|---|---|---|---|

19716 | 2007 | 26 صفحه PDF | سفارش دهید | 11960 کلمه |

**Publisher :** Elsevier - Science Direct (الزویر - ساینس دایرکت)

**Journal :** International Review of Economics & Finance, Volume 16, Issue 3, 2007, Pages 306–331

#### چکیده انگلیسی

In this paper we examine the real and financial effects of two insiders trading in a static Jain and Mirman model [Jain, N., & Mirman, L. J. (2000). Real and financial effects of insider trading with correlated signals. Economic Theory, 16, 333–353] (henceforth JM). The first insider is the manager of the firm. The second insider is the owner. First, we study the change of the linear-equilibrium variables, in the presence of two insiders. Specifically, we show that the trading order and the real output of the manager are less in this model than in JM model [Jain, N., & Mirman, L. J. (2000). Real and financial effects of insider trading with correlated signals. Economic Theory, 16, 333–353]. Secondly, we show that the stock price reveals more information than in Cournot duopoly and monopoly models studied by Jain and Mirman [Jain, N., & Mirman, L. J. (2000). Real and financial effects of insider trading with correlated signals. Economic Theory, 16, 333–353; Jain, N., & Mirman, L. J. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19–39]. Finally, we analyze the comparative statics (insiders' profits) of this model, when the market maker receives one or two signals.

#### مقدمه انگلیسی

Competition has a profound effect on the transmission of information in market economies. This information plays a very important and natural role in influencing the price of securities in a world in which information is de-centralized and is not or cannot be made public, except by observing market outputs. In the world of stock markets and firms, there are many different types of competitive interactions that produce information. Insiders are individuals who hold proprietary knowledge about aspects of the firm they are associated with. They may not have managerial responsibilities in the firm, for example, the president or members of the board of directors, with oversight duties but not operational duties. Hence, there are many different types of insiders, each with the objective of maximizing their profits from trading the stock of the firm whose inside information they possess. Hence, one form of competition that influences the stock price, the amount of information disseminated through trading in the stock market as well as the real output decisions of the firm, is the competition among insiders. However, this is not the only type of competition that influences the stock price, the transmission of information or the output of the firm. Firms often are in competition with other firms in their market or firms producing substitutes or compliments for their products. This competition has an effect on the real output of the firm. Moreover, it also influences the trading in the stock of the firm as well as the information revealed by the insiders. In this scenario insiders of the firm (those who have information that affects the profitability of the firm) might also include the managers and directors of competing firms. However, as a first approximation, even without thinking about the effect of insiders on other firms, the competition in the real side of the market affects the financial side of all firms in the market. In sum, there are many types of competition in complex market structures. It would be instructive to study a model in which there is competition in both the real and financial sectors. However, in our paper, we limit ourselves to only competition in the financial side leaving the addition of competition in the real side for future research. Competition among insiders has an effect on both the financial and the real part of the firm. It is the purpose of this paper to study these real and financial interactions in a model in which insiders trade on their information, while some insiders are involved in the output decisions of the firm and others are not. The effect of this competition in the stock market is the focus of this paper. We present a model that is consistent with the microstructure literature and add competition among informed traders to study the effect of this competition on the equilibrium outcome. Most of the theoretical literature on insider trading focuses on the financial market, like Kyle (1985), Tighe (1989), Rochet and Vila (1994) and Holden & Subrahmanyam (1992).1 Some recent works like Dow and Rahi (2003), Leland (1992), Manove (1989) and Jain & Mirman, 2000 and Jain & Mirman, 2002, (hereafter JM and JMC, respectively), incorporate real as well as financial sectors in their models of insider trading. The relationship between the real and financial effects of insider trading has recently been studied by JM (2000) and JMC (2002), who focus on the interplay between the information flow from the insider and the real and financial variables of the model, e.g. the stock price and the real output of the firm. This generalization of the Kyle model (1985), allows one to study a rich class of relationships as well as interesting comparative statics. In a series of papers, Jain and Mirman extend the Kyle model (1985) to study, in a more general environment, the effect of information revelation on the trades of an insider, as well as the effect on the real output of the firm. In the first paper, Jain and Mirman (1999) (henceforth JMJ), the market maker receives two signals: the total order flow and a signal about the asset's value. Otherwise, the model is the same as the Kyle model (1985). In this paper, it is shown that the amount of information generated by the additional signal is greater than in Kyle (1985) and depends on the parameters of the model, e.g., the variances of the respective signals. JM (2000) and JMC (2002) study a static Kyle-type model (1985) in which they assume that the insider is also the manager of the firm. With this market structure, the real and financial effect of insider trading is studied in two cases: monopoly and Cournot duopoly. In both models, they study the unique linear equilibrium of the model, i.e., the market maker sets the stock price as a linear function of the signals he receives. In the monopoly model they examine the effect of the real output produced by the firm, the decision of the insider in the stock market, and the information revealed by the stock price. In the Cournot duopoly, they focus on the linear equilibrium in the presence of two competitive firms, i.e., competition in the real sector. Firm 1 is assumed to be managed by the insider and firm 2 is a standard neoclassical firm with its financial decisions ignored. In both of these models, since the manager makes two decisions, the stock trade and the real output decision, a second order condition in terms of a compensation package for the manager must be imposed in order that the manager's objectives are aligned with the objectives of the firm. In the monopoly model, it is shown that, due to this compensation scheme, the insider's trading strategy differs from the insider's trading strategy in Kyle (1985). Moreover, as in JMJ (1999), the market maker sets two (interrelated) coefficients in the price function, one for each signal. They show that the output decision of the firm is influenced by the insider's stock trade. It is also shown that the informational content of the stock trade, as in JMJ (1999), is less than Kyle (1985) and is a function of the parameters of the model, the variances of the noise terms as well as the real parameters of the demand function. Finally, they prove that the insider's profits are less when the market maker receives two signals than in a Kyle-type model (1985), i.e., when only one signal (the total order flow) is received. In the Cournot duopoly model, the effect of the competition between the two firms on the linear equilibrium is examined. In particular, the effect of the different market structures on the stock price, on the amount of insider trading, on the real output of the firm, on the amount of information generated, on the profits of the insider and the firm, is studied. They find that the total aggregate output in the Cournot duopoly is greater than the output produced in the monopoly model. In contrast, they show that the trade of the manager is the same as in JM (2000); in other words, the trade of the insider is not affected by the competition in the real sector. In a sense, this result represents the fact that the same amount of information is generated with two firms in the market as with one firm. Although, the real signal is affected by the change in the output in the market, the informational content of the real signal does not change. Finally, they show that profits are lower than under monopoly. However, this is due entirely to the Cournot character of the equilibrium. The implication in the results of the JMC (2002) paper is that competition in the real sector has an effect on the equilibrium of the model similar to the traditional Cournot duopoly literature. However, as noted above, there are many ways to introduce competition when the real and the financial decisions of the firm are modeled together. In this paper, in contrast to the real sector competition, we examine the effect of the competition in the stock sector on the linear equilibrium. In fact, we assume that there is another agent—referred to, for convenience, as the owner who is also a speculator in the stock sector and has the same information as the manager. As in the monopoly and Cournot duopoly models, we show that the stock price reveals more information when the market maker receives two signals (the signal from the real market and the total order flow) than when only one signal is received, as Kyle (1985) (the total order flow). However, as alluded to in JMC (2002), this signal adds no new information. On the other hand, this type of competition among insiders changes the equilibrium in many ways. First the trading strategies of the two insiders are different from each other. The trading strategy of the owner resembles the one in Kyle (1985), while the trading strategy of the manager resembles the one in JM (2000). Also, the informational structure of the model is different from JMC (2002) since the introduction of an additional trader increases the informational content of the total trades. In some way, this result is a combination of JM (2000) and Kyle (1985) with two traders. There are other differences between the two models. Competition in the stock sector changes all of the coefficients of the stock price function. Indeed, in the monopoly and Cournot duopoly models, the intercept of the price function is zero in both JM (2000) and JMC (2002). This is, in fact, a necessary and sufficient condition for the existence of the linear equilibrium in these models. In this model, we find that a necessary and sufficient condition for the existence of a linear equilibrium is that the price function intercept must be equal to the compensation scheme of the manager. This is because the compensation of the manager is affected by the existence of a second trader and, thus, changes the ability of the manager to adversely affect the firm. We show that the other coefficients of the price function do not completely represent the information in the signals received by the market maker. In fact, as alluded to in JMJ (1999), the coefficients of the price function are found by regressing the value of the firm on the two signals, and then determining an equilibrium, since the coefficients also have an effect in the determination of the contents of these signals. Hence, the coefficients turn out to be influenced by the information in the signals but not determined by them. Next, we find that the size of the trade of manager is less than the size of the trade of the insider in both JM (2000) and JMC (2002). We also prove that the stock price reveals more information than in the two models. This is due to the presence of two insiders who convey more information to the market maker than one insider. We also show that manager's profits in our model compared to JM (2000), depending on the exogenous variables. Note that the profits of the manager in Cournot duopoly are less than in our model. This is due to the presence of competition in the real sector. Finally, we compare the manager's profits to the owner's profit. We find that the profits of the manager and the profits of the owner are not comparable. In other words, the profits of the owner can be greater or less than the manager's profits, depending on the value of the firm. In sum, we show that competition between firms in the real market has a very different effect than competition between insiders in the stock market. Moreover in the latter case, insiders trades are not monolithic. There are differences between insiders trading as well as insiders profits.

#### نتیجه گیری انگلیسی

In this paper, we have examined the effect of the competition in the stock sector on the linear equilibrium studied by JM (2000), in which a manager, making output decisions for the firm, also used his informational insights to trade in the stock market. We assume that there is another agent—referred to, for convenience, as the owner who is also a speculator in the stock sector and has the same information as the manager. As in the monopoly (JM, 2000) and Cournot duopoly (JMC, 2002) models, we showed that the stock price reveals more information when the market maker receives two signals (the signal from the real market and the total order flow) than when only one signal is received, as Kyle (1985) (the total order flow). However, as alluded to in JMC (2002), this signal adds no new information. On the other hand, this type of competition among insiders changes the equilibrium in many ways. First, the trading strategies of the two insiders are different from each other. The trading strategy of the owner resembles the one in Kyle (1985), while the trading strategy of the manager resembles the one in JM (2000). Also, the informational structure of the model is different from JMC (2002) since the introduction of an additional trader increases the informational content of the total trades. In some way, this result is a combination of JM (2000) and Kyle (1985) with two traders. The results of this paper suggest several interesting and important extensions that would be useful for theorists and regulators in the field of insider trading and market microstructure. Of particular interest and importance is the introduction of competition in the real side of the market while at the same time allowing competition in the financial side of the market. This would allow a rich set of circumstances to study the effect of competition on the outcome of the markets as well as the study of information dissemination in these markets. In particular, it would allow research into the effect of competition with several firms all in the same market, and thus having the same information could affect the stock trades of the other firms. This would also be useful in a market with differentiated products in which the firms had information about the entire market and the insiders used this information to trade – not in the assets of their own firms – but in the assets of the firms in which they are not insiders. A second set of extensions would be to make the model dynamic. In this case, it would be possible to study the effect of the dissemination of information in a dynamic context and to study how the real decisions are influenced by insider trading when faced with the possibility of trading on the information in the future.