The Analysis Of Insider Trading Behavior When Public Disclosure And Information Leakage Risk Exist

This paper establishes two-period and multi-period model in which public disclosure and the risk of information leakage exists.Due to the information leakage of insider,private information can be fully reflected in the price at any time,without waiting for the last period of the trading,and then studies the behavior of traders and its influence on the equilibrium.The results of the model are compared with that of the model without information leakage risk.At the same time,the influence of different information leakage risks are analyzed.In the model,through the study of four types of traders: a risk-neutral market maker,an insider,multiple outsiders and noise traders,we get the parameters describing the equilibrium.Due to the existence of information leakage risk,insider will be more active in trading with private information to obtain higher returns before losing information advantage.With the progress of public disclosure,insider will have less incentive to cover up his trading strategy,which will prompt information about asset value to be reflected in the price more quickly.At the same time,outsiders will update their incomplete information and trade more actively to obtain higher returns.As a result,the market will become more stable in the later period.Because the participation of outsiders will make insider choose to leakage private information with relatively low probability,and with the increase of information leakage risk,insider will trade more actively,inject less noise information into the mixed strategy,and disclose private information more quickly,which leads to less expected profits of insider and lower liquidity costs.At the same time,it provides an explanation for the lower information rent and higher informative price in equilibrium.In addition,it provides a way to reduce losses for discretionary noise traders.