Informed Trader Demand in Kyle's Model: Factors Influencing Trading

Answer: a. The change in the fundamental value of the stock.

Under the Kyle (1985) model equilibrium, assuming all other factors remain constant, an informed trader's trading demand increases with the change in the fundamental value of the stock. This is because informed traders have private information about the true value of the stock and will adjust their trading volume accordingly to exploit this information advantage. A larger change in the fundamental value will lead to a greater difference between the informed trader's perceived value and the market price, resulting in a higher trading demand.