Dynamic Thin Markets

Marzena Rostek and Marek Weretka

The Review of Financial Studies, 2015, vol. 28, issue 10, 2946-2992

Abstract: Large institutional investors dominate many financial markets. This paper develops a consumption-based model of markets in which all institutional traders recognize their impact on prices. Bilateral (buyer and seller) market power changes efficiency and arbitrage properties of equilibrium. Predictions match temporary and permanent price effects of supply shocks, order breakup, limits to arbitrage, nonneutrality of trading frequency, and real effects of shocks and announcements in periods other than event dates. Maximizing welfare and stabilizing liquidity through disclosure of information about fundamentals presents a trade-off. Equilibrium representation as "trading against price impact" provides a link with the industry's practice.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhv027 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:28:y:2015:i:10:p:2946-2992.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().