Suppose that the unconditional value of a stock in a Kyle [1985] framework is normally distributed with an expected value equal to E[v] = $45 and a variance equal to ₀ = 30. However, the informed trader has private information that the value of the stock is actually v = $50 per share.

Uninformed investor trading is random and normally distributed with an ex-ante expected net share demand of zero (u = 0) and a variance _u² equal to 5,000.

The dealer can observe the total level of order volume X = x + u where u reflects noise trader transactions and x reflects informed demand, but the dealer cannot distinguish between x and u.

a)In the context of the Kyle model, what might give the informed trader the ability to perfectly camouflage his trades and have them appear to blend in with noise traders?

b)Under the market and trading circumstances set forth above, what would be the level of informed trader demand for the stock? Would the informed trader buy or sell the stock?

c)Insiders are normally informed. Discuss an insider trading case.