Insider Trading With Overconfident Traders

This article develops two kinds of strategic trading models. In the first model, we consider a model with an outsider overconfident on shared information. Get the result that a more confident outsider underestimates to his information in the sense that he trades less aggressively on his information, leading to a less profit in the trading. However, the insider wants to trade more on the shared information but less on his private information when he faces a more overconfident outsider. Also, the overconfidence of the outsider leads to a larger insider’s expected profits, an increased expected loss of noise trader, and a less e?cient and less stable market. In the second model, we analyze the model with the existence of rational, overconfident and heuristic insiders,find that the co-existence of overconfident and heuristic insiders leads to a less trading intensity of rational insider, and less profit to both the rational insider and the noise traders, also find that the overconfident and heuristic insiders all get more profits than the rational insider does.