Insider Trading and Nonlinear Equilibria: Single Auction Case

摘要: A nonlinear version of the KYLE (1985) model is studied. If linear structure might work for small orders, it would hardly be case large orders. No restriction made neither on form equilibrium nor probability distribution ex-ante asset value. Equilibrium characterized as a fixed point an operator, which depends only value; that is, fully determined by probabili- ty necessary and sufficient condition existence establi- shed. Furthermore, some explicit examples equilibria are explored. In simple Bernoulli (just good news bad news), shown there unique in price strongly has plausible empirical counterparts. The problem more complex if value continuous random variable. this case, we restrict ourselves to class can obtained explicitly. then class, provides K YLE's example. paper moves question how risk aversion affects equilibrium. Specifically, assume insider negative exponential utility, prove exists equilibrium, both qua- lity signal initial position play important role. It not surprising pressure lower than neutral case. As far insider's strategy concerned, insiders taking long-position (such corpora- te insiders) want sell when go downwards buy upwards, becomes higher long aggregated market order smal- ler sufficiently number. Naturally, averse converges uniformly