Journal of Economic Research (Tahghighat- E- Eghtesadi)

Journal of Economic Research (Tahghighat- E- Eghtesadi)

Expanding an Information-Based Model Based on Inside and Outside Private Information

Document Type : Research Paper

Authors
Mahdieh Akbari Roshan 1
Jafar Ebadi 2
shapor Mohamadi 3
1 PhD Student, Faculty of Economics, University of Tehran
2 Associate Professor, Faculty of Economics, University of Tehran
3 Associate Professor, Faculty of Management, University of Tehran
10.22059/jte.2021.328201.1008511
Abstract
This paper extends an information-based model for an order market with asymmetric information. The new assumption in this expanded model is that possibility of asymmetric influence of changes in inside and outside information. However, other models generally assume that changes in these two types of information have the same value, or focus only on changes in internal information.
Therefore, in the new extended model, uninformed traders face informed internal and external traders. In the new equilibrium, when the effect of external information is larger than that of internal information for the stock, in the optimal case uninformed traders choose a lower bid price and a higher ask price as the equality effect of these two types of information, and in the opposite case they choose a higher bid price and a lower ask price.
JEL Classification: G14, D82
 
Keywords
Market Microstructure
Uninformed Trader
Private Information
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  • Receive Date 03 August 2021
  • Revise Date 27 November 2021
  • Accept Date 08 December 2021