Bullish/Bearish Strategies of Trading: A Nonlinear Equilibrium

Ramdan Dridi and Laurent Germain

Journal of Financial and Quantitative Analysis, 2004, vol. 39, issue 4, 873-886

Abstract: We study a financial market where risk-neutral traders are endowed with a signal that perfectly reveals the direction (but not the exact amount) of the liquidation value of a normally distributed risky asset. The impact of order flow on prices is nonlinear with a bullish/bearish information structure, which is broadly consistent with empirical evidence. Also, private information is revealed quicker than in a strategic oligopoly.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:39:y:2004:i:04:p:873-886_00

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