Filtration enlargement-based time series forecast in view of insider trading

This survey reviews filtration enlargement models in view of insider trading. Although filtration enlargement aptly models insiders' informational advantage, the theoretical results have not attracted the attention of the empiricists, owing mainly to the lack of a bridge transforming the results to testable hypotheses, and/or the absence of econometrics method linking the hypotheses and the data. This survey provides a feasible avenue to estimate insider information and to detect trading from a relatively sophisticated theoretical model, where the dynamics of publicly available data (e.g., stock price) implies insider information before the information is completely digested. We complete the survey with an empirical illustration based on simulated data.     

Two-period model of insider trading with correlated signals

In this article, we extend the one-period model of Jain and Mirman (1999) for asset trading with two correlated signals to a two period model. We then prove the existence and uniqueness of the Bayesian linear equilibrium. Finally, we perform comparative statics analysis with respect to Kyle (1985). Our findings reveal that adding another correlated signal (the real signal) to the total order flow of Kyle (1985), increases the amount of information incorporated in the stock price at each period and decreases the insider’s expected profits at each period.     

Cournot duopoly and insider trading with two insiders

We study the effect of competition among insiders in an extension of the static Kyle [Kyle, A. (1985). Continuous auctions and insider trading. Econometrica, 53, 1315–1335] model of insider trading introduced by Jain and Mirman (JMC) [Jain, N., & Mirman, L.J. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19–39]. In the JMC model competition in the real sector is introduced. In this paper we introduce competition in the stock sector in the JMC model by assuming that there is a manager who is responsible for making the real decisions of the firm as well as an ‘owner’ who has the same information as the manager but has no managerial responsibilities. In this way we can study the interaction between competition in the real sector and competition in the financial sector. We show that the stock price set by the market makers reveals more information than in the JMC model and that the expected equilibrium values of the manager’s profits sometimes decline and sometimes increase depending on the exogenous parameters of the model. Moreover, we prove that due to the competition in the financial sector, the level of output produced by the firm is less than in JMC. Finally, we also study the effect of financial competition in the case in which the market makers receive only one signal and analyze the comparative statics in this case.     

Why the law on insider trading should not be tightened

Patrick Evershed, who manages the Brown Shipley Smaller Companies Fund, attacks the proposed tightening of the law on insider trading in the Criminal Justice Bill, The changes proposed would penalise honest fund managers.     

When continuous trading becomes continuous: The impact of institutional trading on the continuous trading system of the Warsaw Stock Exchange

This paper examines the impact of a large increase in the number of institutional traders on the performance of a continuous trading system using Polish stock market data. After the Polish pension reform in 1999, the domestic stock market experienced large inflows of money. We theoretically and empirically show that those stocks that are actively traded by pension funds display increases in the share of continuous trading and corresponding liquidity in this system, while no positive effects are found for other stocks. Moreover, we find spill-over effects to the call auction system.     

Local determinacy of prices in an overlapping generations model with continuous trading

We characterize the determinacy properties of the intertemporal equilibrium for a continuous-time, pure-exchange, overlapping generations economy with logarithmic preferences. Using recent advances in the theory of functional differential equations, we show that the equilibrium is locally unique and that prices converge to a balanced growth path and are determined.     

Option introduction and insider trading in the NASDAQ/NMS equity market

This paper investigates and supports the hypothesis that insiders have an incentive to shift their informed trading activities when options initially are listed for a firm. Firm size is found to be related to the level of insider trading activity. There is a significant decrease in insider equity-market volume for the smallest third of firms, a significant increase in insider-equity market volume for the middle third of firms, and a significant decrease in insider equity-market volume for the largest third of firms. This supports the hypothesis of a difference in the degree of impact on equity volume upon option introduction based upon firm size. This research provides additional evidence of informed trading activities when option introduction, insider trading, and firm size are considered simultaneously.     

An equilibrium model of city size

This paper develops an equilibrium model of city size in which population distribution, real prices, and real wages are determined. Two possible modifications are considered, one involving externalities. The partial equilibrium changes resulting from these modifications are derived and seen to be quite different from the general equilibrium changes. Finally, the paper suggests that site-specific factors of production must be introduced into any consistent model of city size.     

On the use of semimartingales and stochastic integrals to model continuous trading

The continuous-time contingent claim valuation model is generalized to stopping times (random trading dates), giving substance to the question of what it means to have unlimited opportunities to trade while trading intercessions may occur only finitely, albeit arbitrarily, often. Robustness and stability of the contingent claim valuation formula are demonstrated, validating the use of continuous-time models for approximating discrete-time trading environments. The no-arbitrage value of a redundant contingent claim is shown to be a stochastic integral obtained as the limit of bounded arbitrage opportunities. As a corollary, we find that the hypothesis needed to value an American call option is significantly stronger than that sufficient to value a European call option.     

内部交易存货涉及减值情形的所得税抵销与调整

企业集团内部交易存货在内部购买方将其售出企业集团之前,如果该批存货发生减值,合并财务报表,一方面,因内部交易差价产生的暂时性差异要进行所得税调整;另一方面,因内部购买方按未实现内部交易利润多提减值,而在个别报表中多确认的递延所得税资产要进行抵销处理,文章对此进行了探讨。     

The effect of earnings forecast precision on firm value and insider trading under voluntary disclosure in Taiwan

Taiwan changed its earnings forecast policy from mandatory to voluntary disclosure in 2005. In this study, the inferences of voluntary earnings forecast are examined based on forecasts issued by listed firms. This study suspects that insiders have a temptation to strategically manipulate financial forecast information to influence markets and thus receive extra rents. Under the new earnings forecast disclosure policy, the number of disclosing firm decreases but the precision of earnings forecast increases. The empirical result from dynamic panel data evidences the forecast error of voluntary disclosure may negatively impact firm values. Furthermore, there is a positive relationship between insiders＇ trading profit and manipulation of earnings forecasts. As volatility in insider manipulation increases, it is difficult for the investors to predict the real intention of insiders, and insiders may achieve greater benefits from trading. This study also observes that many listed companies hold investor conferences to provide earnings guidance in Taiwan. The reason may be that investor conference is more flexible and has less forecast error cost than the formal financial forecast. This study provides important insights into earnings forecast policy in emerging markets. The competent authority should improve corporate governance and develop monitoring functions to abate forecast manipulation.     

Commodity money equilibrium in a convex trading post economy with transaction costs

Existence and efficiency of general equilibrium with commodity money is investigated in an economy where N   commodities are traded at N(N−1)/2$N(N-1)/2$ commodity-pairwise trading posts. Trade is a resource-using activity recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices. Budget constraints, enforced at each trading post separately, imply demand for a carrier of value between trading posts. Existence of general equilibrium is established under conventional convexity and continuity conditions while structuring the price space to account for distinct bid and ask price ratios. Commodity money flows are identified as the difference between gross and net inter-post trades.     

An EMS target zone model in discrete time

The discrete time analogue of the continuous time Krugman target zone model is developed in order to capture the typical volatility clusters and fat-tailed distributed innovations of exchange rates. It is shown that under these more general stochastic conditions the S-shaped relation between exchange rate and fundamentals is preserved, but is less pronounced. The model is tested for its S-shape and stochastic properties. Two clearly distinct sets of EMS currencies are detected on the basis of the curvature features. One-step-ahead realignment probabilities are used as an alternative evaluation method. © 1998 John Wiley & Sons, Ltd.     

The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence

This study assesses the joint decision of multiple earnings–management tools around insider trading. The Taiwanese evidence indicates significantly higher magnitudes of both discretionary accruals and asset sales before insider selling. In addition, to investigate the endogenous relationship between discretionary accruals and asset sales, this study develops a set of simultaneous equations and includes the inverse Mill’s ratio as a regressor to account for firms that choose not to use asset sales. The results indicate a marginal complementary correlation between discretionary accruals and asset sales before insider selling. Further tests find this complementary correlation becomes stronger when accompanying abnormal insider selling. The findings support the view that insiders consider both tools jointly and adjust them as complements to meet their directional earnings management objective.     

An investigation of causality between insider transactions and stock returns

Prior research shows that corporate insiders engage in profitable transactions by trading securities of their own firms. The main purpose of this study is to examine whether insider transactions and stock returns have causality relationships at the firm level for a sample of 2,521 firms during the period 1988 to 1998. We find a large impact of stock returns on subsequent insider transactions at both the aggregate and firm levels. The impact appears to be negative which suggests that insiders buy after stock price decreases and sell after stock price increases. Our findings on the predictive content of insider transactions for subsequent stock returns are primarily consistent with prior literature. We observe a positive but weak relationship between insider transactions and future stock returns.     

An integrated structural model toward successful continuous improvement activity

This paper provides a different view from Bassent et al.'s (2001) toward a successful continuous improvement (CI) activity. Their concept encourages a business that is resting on its present accomplishments to seek greater gain. However, their behavioral model is not easy to operate for managers. In order to operate CI activity effectively and obtain company-wide involvement for management, we need a system which can meet the current CI status and lead the firm toward the correct road as described by Bessant et al. This system has to be open in the way that it can fit into any organization so that it can easily embed the necessary regenerative input into its physical structure. This system has also to be super in the way that it can successfully lead the organization structure toward the evolutionary route.Thus, we propose an open super system which places a pyramid composed by problem, models and tools, and promotion, at its core. Using Bessant et al.'s five evolutionary levels as a time map, this system can analyze a firm's improvement ability from the presentation of cases and find the proper regenerative input from the failure status. A firm can inject this input into its structure to upgrade its level of capability.Applying this open super system on our previous studies, we derived five improvement levels and the different ability types in each level. From there, we discovered some failure status in each level. We also drew some important perspectives on the injection of regenerative input from failure status, including the promotion of the technique-excellence ability, the value problem, and efficiently solving problem. To help the readers to understand this system better, we give ‘AB two stage’ system as an example to show how to inject regenerative input into the physical structure to fulfill the expectations from different perspectives.     

Insider trading in a two-tier real market structure model

This paper investigates the real and financial effects of insider trading in the spirit of Jain and Mirman (2000). Unlike the existing literature, the production of one real good is costly and depends mainly on the price of an intermediate good produced locally by a privately owned firm. The results show that the output level of the final good chosen by the insider as well as the price of the intermediate good set by the privately owned firm are both higher than it would be in the absence of insider trading. Furthermore, the parameters of both real markets affect the stock price. Next, a second insider, operating in the firm producing the final good, is added to the benchmark model. Competition among insiders decreases the production of the final good by the publicly owned firm and the price of the intermediate good with respect to the benchmark model. Moreover, it affects the insiders’ trades and increases the amount of information revealed in the stock price.     

A continuous double implementation of the constrained Walras equilibrium

We provide a continuous and feasible double implementation of the Walras equilibrium. In our game form the set of traders is partitioned intok subsets,k>-2, and for each member of the partition there is an (outside) auctioneer. Also, each agent announces a price-allocation pair so that all agents become price takers. The outcome allocation is defined as the feasible (and budget balanced) allocation which is closest to the aggregate announced allocation. No assumptions are made on the preferences of the traders.