Market structure and insider trading

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.