The Institute for Statistics and Mathematics is pleased to invite you to the next research seminar, taking place on campus:

Umut Cetin (Department of Statistics, London School of Economics and Political Science)
Insider Trading With Legal Risk in Continuous Time
Wednesday, May 15, 2024, 17:15, Building D4, Room D4.0.127

Abstract:
We will consider the Kyle model in continuous time, where the insider may be subject to legal penalties. The insider internalizes this legal risk by trading less aggressively. In the particular case of normally distributed asset value, the trades are split evenly over time for sufficiently large penalties, with trade size proportional to the return on the private signal. Although the noise traders lose less when legal fines increase, the insider's total penalty in equilibrium is non-monotone since the insider trades little when the legal risk surpasses the value of the private signal. Thus, a budget-constrained regulator runs an investigation only if the benefits of the investigation are sufficiently high. Moreover, the optimal penalty policy is reduced to choosing from one of two extremal penalty levels that correspond to high and low liquidity regimes. The optimal choice is determined by the amount of noise trading and the relative importance of price informativeness.

Please note the day and time change for this talk.

We aim to stream all on-campus talks via Zoom. A direct link to the stream will be posted on our website.

For further information and the seminar schedule, please see:
www.wu.ac.at/en/statmath/research/resseminar