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Existence of linear equilibria in the Kyle model with partial correlation and two risk neutral traders
Wassim Daher1,2, Elias G Saleeby3
1Department of Mathematics and Natural Sciences, Gulf University for Science and Technology, Kuwait.
Abstract:
We study a generalization of the static model of [11] with two risk neutral insiders to the case where each insider is partially informed about the value of the stock. First, we provide a necessary and sufficient condition for the uniqueness of the linear Bayesian equilibrium. Specifically, we show that, when the covariance matrix of the errors terms of the insiders' signals, is not singular, the linear Bayesian equilibrium is not unique. Then, we carry out a comparative statics analysis.
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