Information Revelation, Transparency and Insider Regulation
The Copeland and Galai model introduced in the previous chapter is a preview to the simple market microstructure theory. However, it is a static specification: ruling out dynamic learning effects which may be like essential in practice. In this structure, prices are fixed the entire day without regard to the flow order. Thus, the Copeland and Galai model is ideal to describe initial expectations and price-setting behaviour in dealership markets. This chapter focuses on the way that secondary market makers and other ‘uninformed’ participants can learn from the trading activity of insiders and other ‘informed’ traders. The model used can help in discussing the regulation of insider trading. The chapter also provides knowledge on insider regulation in practice as well as market transparency, wherein all participants can immediately see the trades taking place.
Keywords: simple market, microstructure theory, dealership, secondary market, insider regulation, market transparency
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