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|Title: ||Insider Stockholdings: New Light on Rational Expectation Theory|
Rational expectation theory
|Issue Date: ||2009-09-11 17:05:12 (UTC+8)|
|Abstract: ||We investigate the trading strategy of the insider and propose two models to describe the insider’s behavior. Comparing with previous studies, we add insider stockholdings as a variable to the extension of information asymmetry.
In our setting with information asymmetry between outside investors and the insiders, the insiders could obtain more inside information via increasing their stockholdings. When the insider with large stockholdings purchases more shares, outside investors would take this as a positive signal that the insiders regard the performance of the company in the future as optimistic. On the other hand, when the insider stockholdings is large, outsiders would worry that inside trading may become more.
The insider would deliberate upon the quantities traded at period one and two, which have different impact in stock price. If the insider buys more stocks at period one, he could improve his information precision. However, if the insider buys large stocks, the market makers would take into account the insider’s function of information precision and thus the insider may impact on the stock price. Therefore the insider would evaluate market makers’ pricing rule.
Since increasing stockholdings enhances precision information, intuitively, earlier stage the insider submits a large order. Nonetheless, our study shows that when the insider stockholding is extremely large, then the increasing of information precision is limited because the information precision is increasing with insider stockholding at a decreasing rate. Besides, when the insider stockholdings is large enough at period one, he would place a small order at period two.
|Reference: || Kyle, “Continuous auctions and insider trading,” Econometrica, November, 1985, 1315-1335.|
 Grossman and Stiglitz, “On the impossibility of informationally efficient markets,” America Economic Review, June 1980, 393-408.
 Leland and Pyle, “Informational asymmetries, financial structure, and financial intermediation,” Journal of Finance, 32, 371-388.
 Shleifer and Vishny, “Large shareholders and Corporate control,” Journal of Political Economy, 1986, 94, 461-488.
|Source URI: ||http://thesis.lib.nccu.edu.tw/record/#G0091351025|
|Data Type: ||thesis|
|Appears in Collections:||[國際經營與貿易學系 ] 學位論文|
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