The Insider Trading With Incomplete Liquidation Value Signals

In the real financial markets, inside traders can’taccurately know the value of the risk asset, but only observesome valuable signals about it.In this thesis, by applying the skill of orthogonalization,we first study two phases of insider trading with incompleteinformation of the value of the risk asset and solve the marketequilibrium. Then, we extend to study N-period insider trading.According to the characteristics of the parts of the expectedreturn, we take into three insider trading models: riskpreference model, risk aversion model and risk neutral model.Then, again by applying the orthogonalization skill, we solvethe unique equilibrium for each of the three models. And itshows that the signal distortion factors significantly affectmarket liquidity, market depth, inside traders’ expect profits,and the revelation of information.Our main point in this thesis is that the insider candirectly make use of the history of price information disclosedby market makers but not collecting the history of total ordersof the asset by taking another cost as other authors suggested.Therefore, our method sounds more economy.