Wealth or Stealth? The Camouflage Effect in Insider Trading

We consider a Kyle-type model where insider trading takes place among a potentially large population of liquidity traders and is subject to legal penalties. Insiders exploit the liquidity provided by the trading masses to "camouflage" their actions and balance expected wealth with the necessary stealth to avoid detection. Under a diverse spectrum of prosecution schemes, we establish the existence of equilibria for arbitrary population sizes and a unique limiting equilibrium. A convergence analys...