On The Two-Period Leader-Fowller Insider Trading Game And Rational Information Disclosure

In the insider trading market of risky assets,there is usually a new insider's entry or a leakage of asset information.In this paper,we firstly study a class of two-stage Stackelberg game model of insider trading with a new comer,and prove the existence of linear Bayesian-Stackelberg equilibrium of the game.It shows that in this equilibrium,the signal of the asset value received by the insider traders is positively correlated with both insider trading orders and the market price fluctuation at the first stage,but is negatively correlated with the market price fluctuation at the second stage.And then,we study two-stage insider trading model with rational information disclosure which requires that after trading in first stage and before trading in the second stage insider's trade in the first stage is publicly disclosed.We get the optimal linear insider trading strategy of each type of information traders in the second stage,which depends on trading volume in the first stage.By comparing the profits of the internal traders and the designated traders at each stage in a special case,we find that the disclosure of information and trading volume can reduce insider traders' expected profits,but increase specified traders' expected profit.