Continuous-time trading with multiple insiders and price impact
OA Version
Citation
Abstract
We study imperfect competition among risk-averse insiders in a continuous time Kyle-Back model framework with price impact, allowing informed traders with heterogeneous CARA risk aversion to enter the market sequentially. We show that, unlike in the risk-neutral case with perfectly correlated signals, a linear equilibrium exists even when multiple insiders observe the same signal. Our main application considers a market in which one insider observes the asset value at time 0, while a second insider receives the same signal at a later date. We characterize the equilibrium explicitly and compare it with the single-insider benchmark. Before the second insider enters, the first insider trades more aggressively in anticipation of future competition, which accelerates early information revelation and lowers market depth. After entry, however, the first insider’s trading intensity declines because of the risk-sharing effect. As a result, price informativeness is always higher before entry than in the single-insider benchmark, whereas after entry it may be either higher or lower, depending on the timing of the second insider’s arrival. Market depth displays a similar pattern: it is lower before entry, while after entry it may remain lower the benchmark or cross it, depending on the timing of entry. We also show that the first insider’s welfare is lower than in the single-insider benchmark, but it increases as the second insider enters the market later. More generally, we characterize how differences in insiders’ risk aversion shape their equilibrium trading behavior.
Description
2026