The Trading Behavior Of The Overconfident Insider And Its Impact On Market Equilibrium

The Transaction Behavior of Overconfident Insider and Its Impact on Market E-quilibrium This dissertation studies the model of overconfident insiders(illegal access to information)with market regulators,and the problem of concentrated trading and sur-vival of overconfident insiders.It is found that the optimal regulation of insiders who illegally acquire information iis not supervised,but when there are market regulators,the intensity of transactions increases,which leads to the market approaching a strong efficient market.In addition,we provide a new reason for the survival of overconfident insiders:concentrated trading from discretionary noise traders.Firstly,this dissertation introduces the most basic,multi-period risk-neutral insid-er trading model and multi-period overconfident insider trading model in the existing literature,and introduces the preparatory knowledge needed to solve the model equilib-rium,and uses it to solve the equilibrium.Then,on this basis,this dissertation studies the trading behavior of overconfident insiders and its impact on the market with the participation of market regulators.That is,on the basis of the multi-period overconfi-dent insider trading model of Abelt Wang F.(1998)[1]articles,market regulators are added in each Period.Thus,there are four types of market participants:overconfident insiders,noise traders,market makers and market regulators.We assume that there is a risky asset in the market marketv?N(0,?0¨),un the noise trading is a Brown Move,and ?un?N(0,?u2?tn),,and v is independent of ?un Wc solve the model equi-librium under the following conditions:1.The market maker receives the total order?un=?xn+?u,pricing under semi-strong efficient conditions;2.Maximizing the expected profit of overconfident insiders;3.Minimizing the loss of noise traders.Us-ing Abelt Wang F.(1998)calculation method,we find the unique solution of the linear equilibrium for N-period discrete model,and obtain the supervision probability equal to 0.In order to better analyze the equilibrium,we give an algorithm to simulate the equilibrium of the model,and discuss the difference between our model and the Albert Wang F(1998).[1]article.We draw the most important parameters of the two models(market depth,trading intensity and residual information parameters)with the change of trading periods.By comparing and analyzing the graph,we can see the difference and relationship between the two models intuitively.On this basis,we analyze its economic significance.Next,we consider why overconfident insiders can exist in the market,and when there are overconfident traders in the market,there will be concentrated trading.We build a framework on Admati and Fliderer(1988)[2]model.There are four types of participants in the market:insiders(rational and overconfident),non-discretionary noise traders,and discretionary noise traders and market makers,we study the two-period trading models.The approachof Gong F.and Zhou D.[3]are used to study the subgame perfect Nash equilibrium of the model.The results show that overconfident insiders can survive because they attract more discretionary noise traders to trade,and it provides more camouflage for the overconfident insiders at the same time,which al-so explains why concentrated trading can occur.Our conclusion also shows that if an overconfident insider attracts enough noise traders,he earns more from the total noise traders than the rational insider,although he may earn less from each of them.Finally,we compare the equilibrium results with the existing models and explain the economic significance of the two models with the participation of overconfident insiders.