 Price manipulation, dynamic informed trading, and the uniqueness of equilibrium in sequential tradingJournal of Economic Dynamics and Control, 2021, vol. 125, issue C Abstract: We study the manipulation of prices in a dynamic version of the Glosten and Milgrom (1985) model with a long-lived informed trader. We clarify the conditions under which a unique equilibrium exists and show that when the equilibrium is unique, bid and ask prices are monotonically increasing functions of the market maker’s belief about the value of the asset. We also characterize the situations in which this equilibrium involves manipulation of prices by the informed trader. Finally, we describe a computational method to find equilibria in the model, and simulation results confirm and extend our theoretical findings. Keywords: Market microstructure; Glosten–Milgrom; Insider trading; Dynamic trading; Price formation; Sequential trade; Asymmetric information; Bid–ask spreads (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:125:y:2021:i:c:s016518892100021x DOI: 10.1016/j.jedc.2021.104086 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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