Welfare Analysis of Insider Trading

Student: Ashakhanov Ruslan

Supervisor: Georgy Lukyanov

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Year of Graduation: 2017

In my paper I tried to conduct social welfare analysis of insider trading. I assumed three types of traders: insiders, speculators (they know whether there inside information, but they do not know what is the inside), and uninformed traders. Hypothesis that speculators will lead to destabilization on the market came up to be rejected. One of the possible reasons is that I use 'corner' cases: only traders on the market are insiders and speculators versus insiders and uninformed traders. Price variance that I calculated turned out to be less in the first case. The intuition under that is that when insiders and speculators operate, they form the demand, thus forming price. So, since the information they posses does not differ so much as in case with insiders and uninformed traders, price volatility turned out to be smaller

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