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Overconfidence and insider trading with correlated signals
1Department of Mathematics and Natural Sciences and Center of Applied Mathematics and Bioinformatics (CAMB), Gulf University for Science and Technology, Kuwait.
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This study extends the framework of Jain and Mirman (1999) model to the case of overconfident market makers à la Zhou (2011). We characterize the linear equilibrium outcomes and derive explicit formulas for the model parameters. A comparative statics analysis is then conducted with respect to the Jain and Mirman (1999) and Zhou (2011) models.•Insider trading volume is independent of the level of overconfidence.•Key equilibrium outcomes depend on the variances of the underlying variables and the degree of overconfidence.
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